Last week US President Donald Trump decided not to extend the CUSMA agreement for an additional six-years, which would have extended it to 2042.
While the move was not unexpected, it is nonetheless bad news because it ensures that trade uncertainty will remain a persistent headwind for the Canadian economy.
Most immediately, the announcement will make both Canadian and foreign businesses less likely to invest in capacity enhancement and expansion, further weakening our already lagging productivity. Over the longer term it will increase trade friction and costs, and it will also likely weaken the Canadian dollar.
I am optimistic about our federal government’s trade-realignment initiatives and about our economy’s long-term prospects. But the concomitant structural changes to our economy now underway will weigh heavily on our near-term growth prospects.
The Bank of Canada (BoC) had highlighted the US decision not to extend CUSMA as a key risk, and last week’s announcement bolsters my long-held view that the Bank’s next policy-rate move will be a cut.
The Latest on Mortgage Rates
Government of Canada bond yields were range bound last week.
The US and Iran exchanged fire in the Strait of Hormuz, putting strain on their already fragile cease-fire agreement. Bond-market investor fears that the energy shock would drag on appeared to be roughly offset by the US decision not to extend CUSMA and by weaker-than-expected US employment data (for June).
Fixed mortgage rates held mostly steady, and the discounts off prime offered on variable-rate mortgages were unchanged.
Bond-market investors are no longer pricing in any change to the BoC’s policy rate in 2026.
My Take on Today’s Mortgage Options
Fixed rates are likely to remain volatile. Three- and five-year terms are the most popular choices. If the spread between those two options is minimal, I still think five-year terms offer better value.
While I appreciate the appeal of fixed-rate stability in our current volatile environment, I continue to believe that variable rates will likely prove cheaper over their full terms.
(Important note: Anyone choosing a variable rate should do so only if they are comfortable with its inherent potential for volatility. Borrowers must also have the financial capacity to withstand higher costs and, in some cases, higher payments.)
The BoC continues to look through our recent inflation spike because it has thus far been limited to surging energy prices. If the US/Iran war drags on and its associated inflationary impacts become broader and more entrenched, there may come a time when the Bank will be compelled to tighten. For now, my assessment is that we won’t get to that point, and I am encouraged by the drop in energy prices after the US/Iran sixty-day cease-fire was announced.
Meanwhile, trade uncertainty remains the greater long-term threat to our economy. At its most recent meeting, the BoC expressed its willingness to “cut the policy rate further to support economic growth” if the US imposes new trade restrictions. The US decision not to extend CUSMA last week effectively did just that.
Insider’s Tip for Borrowers
If you’re in the market for a mortgage, instead of focusing on how much you can borrow, you will be far better off in the long run by focusing on how much you can (conservatively) afford to pay.
A lender doesn’t care if you ever save for retirement, take a vacation, or go out for a nice dinner. With that in mind, when you decide how much you will borrow, focus on what works for your budget, not on the maximum amount you can borrow.
This post offers advice on how to work out a reasonable mortgage budget using two different approaches: the easy way and the hard way.
Three Posts Every New Visitor to My Blog Should Read:
1. Should Canadians Choose a Fixed or Variable Mortgage Rate During a Trade War?This post provides a detailed comparison of the pros and cons of fixed- and variable-rate mortgages amidst trade-related economic uncertainty.
2. What Every Canadian Borrower Needs to Know About Fixed-Rate Mortgage Penalties
For myriad reasons, some of them unanticipated, many Canadians end up having to break their fixed-rate mortgages. This post provides a detailed breakdown of the very different ways that lenders calculate their fixed-rate mortgage penalties. The amounts charged can vary significantly from lender to lender.
3. What’s in the Fine Print
This post provides a detailed summary of the key terms and conditions to pay attention to in your mortgage contract. (They are not standard and can vary in important ways.)
David Larock is an independent full-time mortgage broker and industry insider who works with Canadian borrowers from coast to coast. David's posts appear on Mondays on this blog, Move Smartly, and on his blog, Integrated Mortgage Planners/blog.