An interest rate hike coming? What it means for your mortgage

The policy rate is at 2.25%, but markets anticipate a rise. Fixed, variable, renewal: here’s how to prepare now.

For more than a year, the Bank of Canada key interest rate has been steady at 2.25%. Many of you have breathed a sigh of relief. Yet, winds could turn: according to bond markets, the probability of a rate increase by the end of the year is very high, and the next announcement is on October 28. Here is what that means in concrete terms, and how you can prepare.

What’s happening, exactly?

The policy rate directly influences banks’ prime rate, and thus the cost of variable-rate loans. It also indirectly affects fixed rates, which mainly follow bond yields.

Let’s be clear: most economists at major banks still forecast rate hold through the end of 2026. Markets, however, are more nervous. No one knows the future; these are probabilities, not certainties.

If you have a variable rate

Your rate moves with the prime rate. Depending on your loan type, your payment increases immediately (variable-payment loan) or your portion of interest grows while the payment remains the same (variable rate with fixed payment). In the latter case, check your statement: if the amortization period lengthens, the “trigger rate” is approaching.

If your renewal is approaching

More than half of Canadian homeowners will have to renew in 2026, many after obtaining a rate below 2% in 2021. With fixed rates now around 4%, the payment increase can be significant: about $600 more per month on a $400,000 loan, according to a economist cited by Noovo in January. Good news: at this stage, you no longer have to pass the stress test if you stay with your current lender (rule in effect at the time of writing; verify according to your situation).

Three concrete steps:

1. Start early. You can generally lock in a rate 120 to 180 days before maturity, with no firm commitment at several lenders.
2. Shop around. The renewal offer sent by your institution is almost never the best. A broker compares dozens of lenders at no cost to you.
3. Avoid the reflex to lengthen the amortization. It eases the budget today but can cost $10,000 to $20,000 or more in interest in the long term.
4. 
   

Fixed or variable right now?

There is no universal right answer. Fixed offers peace of mind; variable can be cheaper if rates stay stable, but carries more risk. The right choice depends on your budgetary flexibility, your risk tolerance, and your plans (sale, refinance, move).

Your next step

Whether you renew in six months or in three years, it’s better to take stock now than under pressure. Contact me for a free analysis of your file: we will compare your current situation, possible scenarios, and available options.

This article is provided for informational purposes and does not constitute personalized financial advice. Rates and rules may change; please consult your broker for an analysis of your situation.