Bank of Canada Rate Hike Lifts Mortgage Costs as Banks Raise Prime and Fixed Rates
The Bank of Canada raised interest rates by 25 basis points, increasing costs for floating-rate mortgage holders. Several banks responded by raising prime and fixed mortgage rates despite falling fixed funding costs. Market pricing suggests three more hikes could come next year as inflation is projected to hover around three percent in 2027.
The Bank of Canada increased floating interest rates by 25 basis points, immediately raising borrowing costs for homeowners with variable and adjustable-rate mortgages. For an adjustable-rate mortgage with 20 years remaining, the hike adds approximately $13 per month to payments for every $100,000 outstanding. On a fixed-payment variable-rate mortgage, the monthly payment amount remains unchanged unless a trigger rate is reached, but roughly $21 more goes toward monthly interest instead of principal per $100,000.
Several banks immediately bumped up their prime rates and fixed rates following the central bank's decision, despite fixed funding costs falling. This divergence has raised questions about whether lenders are seeking to encourage borrowers to lock in higher rates.
Current leading national mortgage offers reflect the shifting landscape. Insured three-year fixed mortgage rates stand at 4.44 per cent, while uninsured three-year fixed rates are at 4.64 per cent. For five-year terms, leading national insured fixed rates are 4.44 per cent and uninsured fixed rates are 4.84 per cent. On the variable side, leading national insured five-year variable mortgage rates are 3.55 per cent, and uninsured five-year variable rates are 3.90 per cent. In Ontario and Alberta, RateBuzz offers an uninsured five-year fixed mortgage rate of 4.30 per cent.
Looking ahead, forward rate pricing from CanDeal DNA suggests the market is bracing for three more interest rate hikes next year. The central bank projects inflation to hover around three percent in 2027.
For term-agnostic borrowers seeking the lowest borrowing cost, simulations from MortgageLogic.news indicate that fixed rates still hold a slight edge over variable rates on paper.