‘Biggest mistake homeowners can make right now’: what the recent BoC rate hike into a stalling economy means for your money

Pricier borrowing, stalled growth and gas-fuelled inflation land hardest on households with variable-rate debt or an upcoming mortgage renewal. It can also quietly reward savers. Here’s how the pieces fit together, and what to do before the next rate decision on Dec. 9.

Why did the Bank of Canada raise rates if the economy is stalling?

The bank is trying to get ahead of inflation rather than respond to growth. The BoC raised its policy rate by 0.25 points to 2.5% and warned that more increases could follow. It expects inflation to climb to about 3.5% by the end of the year, above its 1% to 3% target range.

Energy is the culprit. Gas prices were up 27.8% year over year in September, according to Statistics Canada data, pushing the consumer price index (CPI) to 3.1%. Excluding gasoline, inflation was just 2.2%.

Governor Tiff Macklem said the hike aims to stop high energy costs from spilling over into “generalised inflation.”

But the economy isn’t cooperating. Real gross domestic product (GDP) was essentially unchanged in August, missing the 0.2% gain economists expected. Early figures point to a 0.1% dip in September, leaving third-quarter growth tracking at 1.3% annualized — below the BoC’s 2% call.

Andrew Grantham, senior economist at CIBC, said the economy “was already struggling for momentum” before the hike.

What does a 4.70% prime rate cost you?

Canada’s big banks, including RBC, TD and National Bank, raised their prime rates to 4.70% from 4.45%, effective Oct. 29. Prime drives the rate on variable-rate mortgages, home equity lines of credit (HELOCs) and most personal lines of credit.

As a rough illustration, every $100,000 of prime-linked debt now costs about $250 more in interest per year. On a $50,000 HELOC, that’s roughly $125.

Adjustable-payment variable mortgages rise right away. Fixed-payment variable mortgages keep the same payment but send more of it to interest, slowing your principal paydown.

Fixed mortgage rates track bond yields rather than prime — and the BoC notes those yields have risen since July.

“I think the biggest mistake homeowners can make right now is assuming that because their monthly mortgage payment hasn’t changed, their financial position hasn’t changed either,” explains Shael Weinreb, CEO and founder of The Home Equity Partners, a Canadian financial company based in Toronto that offers a debt-free alternative to traditional loans and reverse mortgages.

Will rates go up again in December?

Many Canadians are wondering: could rates go up again in December? Possibly. As of Oct. 30, financial markets put the odds of another hike on Dec. 9 at 57%, according to LSEG Data & Analytics.

But the survey shows that economists are split. Grantham argues the weak GDP data supports a December pause. Tu Nguyen, chief economist at RSM Canada, sees a December or January hike as roughly a toss-up, but leans towards a sooner repeat rate hike. Marc Ercolao, an economist at TD Economics, is not as convinced, stating that weaker underlying growth “could complicate the case for further tightening.”

Still, the underlying message for Canadians with debt is that we should expect another quarter-point rate increase, not a return to 2023-era rates.

Is there an upside for savers?

There is an upside to these rate increases: savers win, to a degree.

Higher rates tend to lift yields on high-interest savings accounts (HISAs) and guaranteed investment certificates (GICs), which helps retirees and anyone holding cash in a tax-free savings account (TFSA).

But with CPI at 3.1% and the BoC forecasting an average of 3% in 2027, a savings account paying 2% still loses purchasing power. So, the real test is whether your after-tax return beats inflation — and for many savers this means turning liquid savings into investment earnings.

What to do now

What should Canadians do as we approach the end of 2026? It depends on your situation.