What Rising Funding Costs Mean for Real Estate Investors and Landlords

If you’ve been watching mortgage rates lately, you may have noticed something that feels contradictory: the Bank of Canada has paused rate hikes — and yet, some fixed mortgage rates have gone up.

For property investors and landlords, this shift is more than a headline. It’s a reminder that what drives your borrowing costs isn’t just the policy rate — it’s also what’s happening behind the scenes in the funding markets where lenders get their money.

Let’s unpack what’s happening, why it matters, and how you can adapt your strategy to protect your returns.

🏦 Understanding “Funding Costs” — and Why They’re Rising

Every lender — from the big banks to alternative and private lenders — has to source the money they lend out to borrowers. They do this through a mix of deposits, bond markets, and investor-backed funds. The cost of that capital is what we call the “funding cost.”

Normally, when the Bank of Canada cuts or holds its policy rate, we’d expect funding costs to follow. But lately, that hasn’t been the case. Here’s why:

1. Bond yields have risen.
   Government of Canada bond yields (which heavily influence fixed mortgage rates) have ticked upward since August 2025 as markets priced in longer-term inflation risks and global credit uncertainty.

2. Investor spreads are widening.
   Alternative lenders, MICs, and credit unions rely on investor capital. With market volatility rising, investors are demanding slightly higher returns — which pushes borrowing costs up.

3. Global conditions matter.
   Higher yields in U.S. and European markets make Canadian mortgage-backed investments less attractive unless local lenders raise rates to compete.

So even though the central bank’s policy rate sits at 2.75%, funding costs for lenders are closer to what they were when rates were 3–3.25%.

🏘️ What This Means for Real Estate Investors

For landlords and investors, higher funding costs can squeeze cash flow, slow expansion plans, and increase renewal risk. Here are three key implications:

1. Refinancing Is More Expensive — But Still Worth Evaluating

If you’re approaching renewal, you might notice rates 0.2–0.4% higher than expected. But refinancing now could still make sense if you’re sitting on high-cost private or short-term debt from the 2022–2023 peak.

A broker can help you model scenarios where switching lenders — even with a slightly higher rate — could lower monthly payments or extend amortization for cash-flow relief.

2. Cash Flow Compression Is Real

Investors with variable-rate or short-term mortgages are seeing tighter margins as rents stabilize but costs rise.
It’s crucial to stress-test your portfolio at +1% from current rates and build in buffer cash flow.

Some landlords are mitigating this by:

• Phasing rent increases gradually (within legal limits),

• Reducing turnover with long-term tenant incentives, or

• Leveraging HELOCs for short-term liquidity instead of refinancing at higher rates.

3. Expansion Requires Creative Capital

The era of “buy, refinance, repeat” has slowed — but not disappeared.
Alternative financing options like Mortgage Investment Corporations (MICs) and non-bank lenders can still fund acquisitions quickly, often with flexible qualification criteria.

For investors seeking bridge financing or looking to purchase properties under construction, a short-term open mortgage through a MIC like Advanced MIC can offer the liquidity needed to act on opportunities while traditional lenders remain conservative.

💡 Strategies to Protect and Grow in a Higher-Cost Environment

1. Rebalance Leverage
   Keep your loan-to-value below 70% when possible. It not only improves your renewal terms but also shields you from sudden funding cost shocks.

2. Diversify Lending Sources
   Don’t rely on one lender or type of mortgage. Split loans between traditional and alternative lenders to access different rate structures and repayment flexibility.

3. Plan Renewal Timing Strategically
   If your renewal lands in early 2026 — a period when rate cuts are expected to continue — talk to your broker about a short-term renewal or 1-year fixed term to ride the next wave of potential decreases.

4. Use Your Broker’s Network to Your Advantage
   Mortgage Brokers Ottawa works with 30+ lenders, including specialized investor-focused institutions. This network gives you access to tailored investor products — from rental offset calculations to portfolio refinance bundles — that traditional banks rarely offer.

📈 Looking Ahead: Stability Before Opportunity

Economists at RBC and TD expect funding pressures to ease gradually through mid-2026, assuming inflation continues trending down and bond yields stabilize.

That means this winter could be the “peak” of current funding costs — a period where patience and flexibility pay off.

Smart investors will use this time to restructure debt, consolidate loans, and position for expansion when rates begin to normalize again.

🤝 Final Thought

The real estate market rewards those who adapt. Rising funding costs might make borrowing more expensive in the short term, but with the right structure — and the right broker — investors can still build, refinance, and scale strategically.

Whether you’re renewing, expanding your portfolio, or simply exploring better financing terms, Mortgage Brokers Ottawa can help you navigate complex lending environments and connect you with investor-friendly solutions that banks often overlook.

In a market where funding costs fluctuate faster than headlines, having an experienced broker on your side isn’t just helpful — it’s essential.