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For homeowners who have gained some breathing room in their mortgage budgets, today’s Bank of Canada announcement may feel like a setback.
The Bank raised its policy rate by a quarter of a percentage point to 2.50% on October 28, the first increase since July 2023, and left the door open to more hikes. For borrowers, the immediate question is how much of that change will show up in their payments.
The Bank is worried that persistently high energy prices will push up costs across the economy, from transporting groceries to producing building materials. It now expects inflation to remain around 3% through much of 2027 before returning close to its 2% target by mid-2028. The economy has also held up better than expected, giving the Bank more room to raise rates.
That leaves households facing pressure on two fronts: everyday expenses and borrowing costs.
How your mortgage could be affected
The impact on your household budget depends on the type of mortgage you have. Some borrowers will see their payments rise, while others will pay more interest without an immediate change to their regular payment.
If you have an adjustable-rate mortgage, your payment will generally rise when your lender increases its prime rate. The amount will depend on your outstanding balance and remaining amortization.
With a fixed-payment variable mortgage, your payment may stay the same, but more of it will go toward interest and less toward paying down your balance. It’s worth checking with your lender or broker about how further increases could affect your mortgage.
If you’re in a fixed-rate term, your current rate and payment won’t change. And while today’s announcement may influence the broader rate outlook, new fixed mortgage rates are driven largely by bond yields and lenders’ funding costs. They don’t automatically rise by a quarter-point alongside the Bank’s policy rate.
A home equity line of credit (HELOC) will generally become more expensive when your lender raises prime, increasing the cost of carrying a balance.
Are more rate hikes coming?
Looking ahead, some economists expect another rate increase as soon as December, while others think the Bank will wait until early next year.
"With today’s hike, the Bank of Canada is taking out some insurance,” wrote TD economist Marc Ercolao. He expects another quarter-point increase in early 2027, bringing the policy rate to 2.75%, but believes further hikes would risk putting unnecessary pressure on the economy.
The next increase could come sooner, according to Servus Credit Union chief economist Charles St-Arnaud. "We believe the BoC will hike again in December to 2.75%,” he wrote, although weaker economic activity or lower-than-expected inflation could keep the Bank on hold.
What you can do now
For your own planning, the useful takeaway is that another increase is possible, but not guaranteed.
You don’t need to overhaul your mortgage strategy after one announcement. Start with a look at your budget and mortgage terms. If your payment is rising, find out by how much. If you have a variable mortgage with fixed payments, check how the increase affects the amount going toward your principal.
If renewal is coming up, give yourself time to compare offers and discuss what matters beyond the rate, including payment flexibility and the cost of breaking your mortgage. If you’re buying, revisit your budget and check when any rate hold expires.
A conversation can help put the announcement into dollars and cents for your household, and make the next decision a little easier. Contact me today to discuss your options. |