By Reza Ghazi,
Forbes Councils Member for Forbes Finance Council

Reza Ghazi is CEO of GreenFlow Financial Corp., overseeing the company’s operations and growth strategies.


A conflict in the Persian Gulf can feel a long way from a kitchen table in Toronto or Ottawa, but this year it hit close to home, reaching straight into Canadian mortgage rates and pushing them up fast before a shaky ceasefire pulled much of that back.

The fighting isn't over, and with oil prices surging again, rates could keep moving. Meanwhile, a weaker loonie is opening the door for American investors.

How Global Conflict Affects Rates

The conflict involving Iran broke out late last winter and choked off the Strait of Hormuz, which handles about 20% of the world's oil and gas that moves by tanker. Oil prices rose by about 30%, drivers felt it at the pump and inflation climbed with it. Fixed mortgage rates follow government bond yields rather than the Bank of Canada's policy rate, so when yields jumped, the result was lenders raising fixed rates.

A temporary ceasefire in early April brought oil off its peak, pulled bond yields lower and eased the pressure on fixed rates. However, the Strait has stayed mostly closed and the fighting has escalated since, temporarily pushing oil past $100 a barrel for the first time since May. June inflation cooled to 2.8% from 3.2% in May, but with oil surging again, that relief may not hold. Bond yields appear to be holding for now, but whether that continues is another question as the conflict continues.

All of this pulled fixed and variable rates apart. Fixed rates now sit a little above where they began the year. Variable rates barely moved, since they follow the bank's overnight rate, which has stayed at 2.25% all year.

That makes the fixed versus variable decision something to consider, and in my brokerage, we are seeing clients start to gravitate back toward variable rates as they have become more attractive compared to fixed rates. The gap between them has widened, but variable rates no longer have falling rates working in its favor the way it did a year ago, so it's worth weighing carefully rather than defaulting to either.

The Bank Of Canada Decision

Bank of Canada Governor Tiff Macklem said they'll look past the conflict's impact on inflation for as long as it stays temporary. On July 15, the bank held its rate at 2.25%, where it has stayed all year because much of the increase to inflation has been due to increased gasoline prices. The renewed fighting keeps the inflation risk alive but the bank held off from hiking rates, betting this flare-up passes.

What This Means For Borrowers

More than a million Canadians are renewing their mortgages this year, many of them coming off ultra-low pandemic-era rates. Rates have come down from their 2023 and 2024 highs, and after five years of payments, their balances being renewed are smaller than the original loan. Therefore, for most borrowers, the new payments are manageable.

It's harder for people who no longer qualify at the big banks. They could be self-employed, maybe hit a credit setback or want to consolidate some debt. They still have options, but the process for them is more complex than a routine renewal with their existing lender, and they likely need to explore other lender options.

An Opening For U.S. Investors

With the U.S. dollar strong relative to the loonie, American money goes further on Canadian property than it did a year or two ago, and parts of the market have cooled. Canada's foreign buyer ban, though, now runs until January 1, 2027. It blocks most non-Canadians, Americans included, from buying a home in the bigger cities and towns, which covers most of the Greater Toronto Area and Ottawa's core.

The ban does have exceptions, though. It doesn't touch commercial property, apartment buildings of four or more units, recreational and rural homes or vacant land. That leaves some opportunities such as a small rental building, a commercial unit, a seasonal rental cottage or land to build on.

Costs And Financing

American buyers face some extra costs which need to be planned for. Ontario charges a 25% speculation tax and Toronto adds another 10%—a combined third of the price—and there is an annual federal tax on vacant or underused homes.

Financing also works differently. The down payment is larger, usually at least 35% of the buyer's own money, and not every lender works with American buyers. The mortgage qualification depends on the property: An income property is assessed partly on its rent, a build requires a construction mortgage with several draws which are advanced as the work is completed, and a commercial purchase rests on the property's own numbers, each with a different set of lenders.

The Bottom Line

The 2026 rate story is being written in the Strait of Hormuz in addition to Ottawa. Fixed rates spiked with the conflict, eased when the ceasefire held and are jumpy again now that it's broken down. Variable rates are steady, and the Bank of Canada is closely watching the conflict. If you're renewing or buying, plan ahead and weigh fixed against variable on today's picture. And for American investors, the same turmoil is opening a window, as long as the deal is built inside the rules.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.