Interest Rate Forecast: Rates Expected to Drop to 0.50% by 2028

The Good News: Borrowing costs for mortgages, loans, and lines of credit are expected to decrease steadily over the next two years. This could lead to significantly lower monthly payments for variable-rate holders and homeowners renewing their mortgages by late 2027.

Here is what you need to know about the changing economy and how to plan for it.

The Numbers: When Will Rates Drop?

As of May 2026, the Bank of Canada’s interest rate is holding steady at 2.25%. While this rate is expected to remain stable through the summer of 2026, analysts predict a major shift is coming.

Here is the timeline for the predicted drops:

Now – September 2026: Rates stay at 2.25%.
October 2026: The first rate cut is expected to begin.
Throughout 2027: Analysts predict the most aggressive drops will happen during this year.
Late 2028: The rate could fall as low as 0.50%.

A rate of 0.50% is a level not seen in years. If this forecast holds true, it will substantially reduce the cost of borrowing for all Canadians.

Who Is Affected?

This forecast is particularly important for three groups of people:

Variable-Rate Mortgage Holders: If you have a variable rate, your payments will automatically go down as the Bank of Canada cuts rates. You will see relief first.
Homeowners Renewing Soon: If your fixed-rate mortgage is up for renewal in 2027 or 2028, you could be locking in at a much lower rate than what is available today.
New Home Buyers: Lower interest rates in the future will increase how much house you can afford and lower your monthly payments.

What You Should Do

While these predictions are promising, you should not make rash decisions based solely on long-term guesses. Here are three steps to take:

1. Review Your Renewal Date Check when your current mortgage term ends. If you renew in late 2026 or 2027, you are in a great position to benefit from these lower rates. If you are renewing right now (in mid-2026), you may face higher rates for a short period before the drops begin.

2. Be Careful Locking In Long-Term If you have a variable-rate mortgage or are up for renewal soon, think twice before locking into a long-term fixed rate (like a 5-year term) right now. If rates drop to 0.50% by 2028, you want to be in a position to take advantage of that, rather than being stuck in a high-rate contract.

3. Budget for the "Wait" Period Remember that rates are expected to stay at 2.25% for a few more months (until at least October 2026). Do not overspend assuming rates have dropped already. Ensure you can handle your current payments until the cuts actually start.

Bottom Line

The Bank of Canada is holding rates at 2.25% for now, but relief is on the horizon. Analysts predict a steady decline starting in late 2026, with rates potentially hitting 0.50% by 2028.

If you can manage your current payments until the cuts begin, you could see significant savings on your monthly debt payments within the next two years.

Source: Bank of Canada Rate Forecast