How Mortgage Investments Are Positioned to Provide Stability in Today’s Unpredictable Environment

In addition to the benefits of diversification, a cross-border investing strategy could offer investors notable advantages in today’s uncertain environment, with policy rates between the U.S. and Canada now at their widest gap in more than 20 years.

Heading into 2025, many investors expected a broad-based easing cycle across North America. Canada began cutting interest rates in mid-2024 as domestic growth slowed. In contrast, the U.S. economy remained resilient, and the Federal Reserve, under political pressure but cautious of persistent inflation, kept its policy rate unchanged. This divergence pushed policy rates in opposite directions, resulting in the widest spread between the two countries in over two decades.

Since then, inflation has remained stubborn, and global uncertainty, fueled by tariffs, shifting trade dynamics, and political volatility, has reshaped expectations for the rate outlook. On July 30, the Bank of Canada held its policy rate for the third straight meeting, while the country’s major banks remained divided on the likelihood of further reductions in 2025.

In the U.S., the Fed maintained its policy rate for the fifth straight meeting. This decision came despite increasingly vocal demands from the U.S. Administration for immediate rate cuts and public calls for a change in Fed leadership. The central bank has so far resisted political influence, focusing on controlling persistent inflation and balancing pressures from ongoing trade and other administration-related risks. Many economists now anticipate no more than one or two rate cuts in the near term.

The uncertainty shaping global markets has, in turn, created conditions where well-diversified portfolios are positioned to generate stable income across both Canadian and U.S. opportunities.

Policy Divergence and Market Dynamics

The widening gap between Canadian and U.S. interest rates has reshaped the mortgage investment landscape. Each market is moving through a different phase of the economic cycle, presenting investors with distinct avenues to deploy capital.

Mortgage Investing in Canada

• Commercial mortgage lending in Canada continues to provide steady deal flow and recurring income opportunities. Despite higher borrowing costs, developers and operators still seek capital outside of traditional banks, particularly for transitional or mid-sized projects.
• Shorter loan terms are common in the Canadian market, creating regular touchpoints for repricing, restructuring, or redeploying capital. Combined with a strong regulatory framework and disciplined underwriting, commercial mortgage lending in Canada can be a strategic source of income for well-diversified portfolios. 
• Amid the uncertainty, the Nicola Canadian Mortgage Fund had one of its most active quarters since its inception in 2009, deploying $177MM across 17 new investments and subsequent advances from prior commitments.

Mortgage Investing in the U.S.

• The U.S. market offers a different but complementary opportunity. With regional banks still constrained and rates remaining relatively high, private capital has become an attractive alternative partner for many borrowers. These “bridge” loans can offer greater flexibility to borrowers, while mortgage lenders benefit from having their loans secured by attractive, income-generating properties in growth markets.
• The Nicola U.S. Mortgage Fund has continued to capitalize on the current market by lending against more conservative assets and metrics with positive growth attributes.

Although expectations for aggressive cuts have moderated, the persistent gap between the two countries presents a meaningful window for mortgage investors. Well-underwritten loans to borrowers who value flexibility, speed, or tailored structures can generate attractive risk-adjusted returns. 

As Nicola Wealth Chief Economist Rob Edel noted in the June Market Commentary, the Fed remains guided by its dual mandate of price stability and employment, not political influence. While U.S. interest rates remain elevated relative to other developed markets, there are reasons for caution. Equity markets have continued to rally, and historical data suggests rate cuts do not always lead to stronger performance.

A Cross-Border Strategy with Built-in Flexibility 

It is not necessary to choose one market over the other. Canadian and U.S. mortgage investments can work together within a portfolio to create a more resilient income stream. Each market brings different risk characteristics, borrower behaviour, and economic cycles. 

The current environment is a reminder that interest rates do not always move in sync. Geographic diversification helps manage that risk. So does investing across a range of asset types, loan durations, and borrower profiles. 

Planning Ahead in a Shifting Landscape 

While markets entered 2025 with expectations for broad-based easing, the current consensus appears to point to fewer rate cuts, at least in the short term. Both Canada and the U.S. face complex political dynamics, geopolitical risks, and persistent inflation pressures.

Meanwhile, ongoing uncertainty in global markets is driving many investors to seek secured, income-generating assets that can weather volatility. Mortgage investments backed by real assets continue to appeal to those seeking income, preservation of capital, and a margin of safety to help protect against downside risk. When thoughtfully diversified across Canada and the U.S., they can offer a blend of consistency and enhanced yield potential, even as central banks follow different playbooks. 

Nicola Mortgage Investments

With $1.4B in assets under management, Nicola Wealth’s mortgage funds provide access to a diverse portfolio across various asset classes and locations. Our investment approach focuses on attractive property metrics in compelling markets, with healthy underlying fundamentals. With the commitment to a full-cycle lending strategy, our defensive approach maintains resilience amid a volatile economic environment.

Learn more about how mortgage investments fit into a diversified investment strategy: nicolawealth.com/private-capital/strategies/mortgages