With a Liberal government in charge, many Canadian homeowners and prospective buyers are wondering:
“Will this impact my mortgage rate?”
Great question — and the answer is nuanced: maybe, but not overnight. Let’s unpack why.
Government Spending & Bonds: What’s the Connection?
Liberal governments have historically favoured increased spending on infrastructure, healthcare, social programs, housing initiatives, and green energy. While these initiatives can stimulate economic growth and support long-term goals like climate transition and housing affordability, they also require substantial capital — which is often raised through government bond issuance.
When the government issues more bonds:
Bond supply increases, and to attract investors, yields (returns) on those bonds may rise.
Since fixed mortgage rates in Canada are closely tied to bond yields, especially 5-year Government of Canada bonds, this can translate into higher fixed mortgage rates.
So, if the Liberals continue with high-spending policies, especially without matching revenue increases, we could see upward pressure on bond yields over time, nudging fixed mortgage rates higher.
The Bank of Canada’s Role: Keeping the Economy Comfortable
Think of the Bank of Canada as the economy’s thermostat. Its main tool? The overnight lending rate, which influences variable-rate mortgages, lines of credit, and overall borrowing costs.
If government spending and consumer demand heat up the economy — particularly if inflation starts climbing — the Bank of Canada could raise interest rates to cool things down.
But here’s the key:
The Bank of Canada doesn’t set rates based on who’s in power — it responds to economic conditions, not political ones.
This means even if a Liberal government increases spending, the Bank will only act if inflation, employment, or growth data signal a need for rate adjustments.
Current context (Spring 2025):
Inflation has been moderating but remains above the Bank’s 2% target.
GDP growth is positive but slowing.
The housing market in many regions is rebounding after a quieter 2023–2024 period.
Given these factors, the Bank of Canada is expected to hold or cautiously adjust rates based on upcoming data — not based on political shifts.
What If the Economy Slows Down?
On the flip side, if international uncertainty (such as trade tariffs or global conflicts) or domestic issues (like a housing correction or rising unemployment) drag down growth, we could actually see:
Lower bond yields, leading to lower fixed mortgage rates.
Potential rate cuts from the Bank of Canada to stimulate the economy — benefiting variable-rate mortgage holders.
Bottom Line
If you’re a homeowner or potential buyer, here’s what to keep in mind:
Fixed Rates are influenced by bond yields, which may rise slightly with increased government borrowing.
Variable Rates follow the Bank of Canada’s overnight rate, which adjusts based on inflation and economic trends — not political parties.
The Bank of Canada will act independently based on how the economy unfolds.
In short, a Liberal government could result in slightly higher borrowing costs in the medium term, but nothing drastic happens overnight — and rates could also go lower if economic headwinds grow stronger.
Want to Talk Strategy?
Whether you’re renewing your mortgage, considering a refinance, or planning a new purchase, having a smart mortgage strategy is more important than ever in a shifting economic landscape.
I’m Brad Plummer, a Mortgage Broker with Dominion Lending Centres Neighbourhood Mortgage Source in Carleton Place, ON. My team and I help clients make confident mortgage decisions, no matter the market or political climate.
Let’s chat about how to optimize your mortgage in today’s environment — and prepare for whatever comes next.
613.714.9499
team@bradplummer.ca