Another month, another period of speculation for the economy. This October has been a wild one fiscally, surprising analysts in ways we didn't expect. A lot of the unforeseen developments happened south of the border, where U.S. President Donald Trump's aggressive policies are reshaping business strategies from the ground up. Canadians, meanwhile, are watching nervously as these shifts send ripples across the border, affecting everything from supply chains to consumer confidence.
Of course our focus is the real estate market. While Canada's generally follows that of the U.S., there's been some variation throughout 2025. Interest rate decisions by the Bank of Canada have diverged slightly from the Federal Reserve's approach, creating unique conditions for Canadian homebuyers and investors. Major urban centers like Toronto and Vancouver have experienced cooling demand as affordability challenges persist, while smaller markets have shown surprising resilience.
The rental market tells a different story entirely. With homeownership increasingly out of reach for many Canadians, rental prices have continued their upward trajectory in most major cities. This has created opportunities for investors, though tighter lending standards have made it more difficult to finance new purchases. Immigration levels continue to drive underlying demand and make housing supply a critical issue across the country.
Bank of Canada Interest Rate Announcements to Date
Interest rates directly impact mortgage affordability and borrowing costs because they translate directly into monthly payment calculations. A quarter-point reduction might seem small, but over the life of a mortgage, it can represent tens of thousands of dollars in savings.
Throughout 2025, the Bank of Canada has taken a cautious approach to rate adjustments, carefully balancing inflation concerns against the need to support economic growth. The year began with rates holding steady as policymakers assessed the impact of previous increases. By spring, signs of cooling inflation prompted the first cut in over a year, providing modest relief to variable-rate mortgage holders. Subsequent announcements have maintained this downward trend, though the pace has been gradual and measured.
The key question moving forward has been whether the Bank will continue its easing cycle or pause to evaluate the results. Where some market watchers predict further cuts before year-end, others expect a period of stability as inflation metrics are reassessed.
Looking south for clues, the Federal Reserve's policy decisions have historically provided a roadmap for the Bank of Canada. Even if we aren't in the exact same economic situation – and have different leaders at the helm – fixed-rate mortgage products have responded to market expectations of future cuts on both sides of the border.
RBC's Forward Guidance Preview predicts 25 basis point reductions in both America and Canada. If and then the downward trend continues, borrowers can expect more opportunities to lock in favorable terms. Variable-rate holders, meanwhile, will see immediate benefits from each policy shift, though they remain exposed to potential reversals if economic conditions change.
The Implications for Your Airbnb Investment
Interest rates are unequivocally one of the most important factors for anyone buying, selling, or investing in real estate. If you own an Airbnb property or are considering entering the short-term rental market, interest rate fluctuations can make or break your investment strategy.
Refinancing Opportunities
As rates decline, Airbnb owners with existing mortgages should actively monitor refinancing opportunities. Even a 0.5% reduction in your mortgage rate can significantly improve your cash flow, potentially adding hundreds of dollars per month to your bottom line. Consider working with a mortgage broker who specializes in investment properties, as they can identify products specifically designed for short-term rental owners.
Adjusting Your Pricing Strategy
When interest rates drop, it often signals broader economic easing that can affect travel demand. Monitor your local market closely and be prepared to adjust nightly rates accordingly. Lower borrowing costs may bring new competitors into the market, increasing supply and potentially putting downward pressure on prices. Stay competitive by emphasizing unique amenities and maintaining exceptional guest experiences.
Leveraging Lower Rates for Expansion
If you've been considering adding another property to your portfolio, declining interest rates create favorable conditions for expansion. Run detailed cash flow projections that account for seasonal occupancy variations, cleaning costs, and platform fees. Remember that lenders typically require larger down payments for investment properties—often 20-25%—so ensure you have adequate reserves before committing.
Variable vs. Fixed Rate Considerations
Airbnb investors face a unique decision when choosing between variable and fixed-rate mortgages. Variable rates offer immediate savings when rates decline, improving monthly cash flow. However, the short-term rental market can be volatile, and having predictable mortgage payments provides stability during slower seasons. Many successful investors opt for fixed rates to ensure their properties remain profitable even during occupancy dips.
Tax Implications
Don't forget that mortgage interest on investment properties is tax-deductible. As rates change, so does your deductible interest expense. Work with an accountant familiar with short-term rental taxation to optimize your strategy and ensure you're capturing all available deductions, including property management fees, utilities, and depreciation.
Speculating only does so much good. Strategy and preparation matter far more.
While it's tempting to try timing the market perfectly – waiting for the absolute bottom of interest rates or the ideal economic conditions – successful Airbnb investors understand that action beats paralysis. The most profitable short-term rental owners are those who focus on fundamentals: location, property condition, guest experience, and disciplined financial management.
Interest rates will continue to fluctuate, economic conditions will evolve, and market dynamics will shift. What remains constant is the need for adaptable, well-researched decisions.
