Oct 8, 2026
For almost a year — to the day — Canadian borrowers have relished the relative calm and stability of interest rates. Sure, there are concerns and fears even as bond yields and fixed rates creep up in response to global uncertainty. But Canadians with variable-rate mortgages and loans have enjoyed set, stable prime rates.
That calm may be ending. While the Bank of Canada (BoC) has held its policy rate at 2.25% through seven straight rate decisions — so payments tied to the prime rate haven’t budged — pressure from inflation, pervasive rising fuel prices and increased costs due to a trade war are taking a toll. Now, less than a week before the next BoC rate decision, a growing number of economists and bond traders are predicting a rate hike.
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A 25 basis points hike won’t break most household budgets, but the decision to tackle inflationary pressures is key. For Canadians with debt on their balance sheet, here’s what to consider before the Oct. 28 BoC rate announcement.
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Why are rate hikes suddenly back in play?
For most of 2026, everyone watched inflation numbers — breathing a collective sigh of relief when inflationary pressures began to ease and job numbers came in stronger than expected.
So, why are rate hikes suddenly back as a possibility? The short answer: Because Canada doesn’t live in a vacuum — so global events impact our domestic economy.
Consumer prices rose 3.0% year-over-year in August, matching July, according to Statistics Canada. For Canada’s central bank, that puts inflation right at the ceiling of their target — the 1% to 3% range the BoC wants when it comes to inflation. But the item that did most of the heavy lifting — when it came to price increases — was gasoline. Exclude gas from consumer pricing and the year-over-year increase is closer to 2.4% — and well within the BoC’s comfort range.
And BoC analysts warned this might happen. In their Sept. 2 rate announcement, the BoC warned that “upside risks to inflation have increased” and confirmed that the central bank is “prepared to adjust monetary policy as needed.”
As a result, rate hikes are now back in play; however, forecasters are split on timing.
According to Canadian Mortgage Professional, Scotiabank and Oxford Economics now expect an October hike, while Manulife Financial Economist, Dominique Lapointe, expects two hikes before the end of 2026. RBC sees a gradual hiking cycle starting in early 2027, and TD Economics still expects the BoC to hold for the rest of the year.
The next piece of the puzzle will be the September inflation numbers, released by Statistics Canada on Oct. 19, with the BoC’s decision to follow on Oct. 28.
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What would a 1-point increase do to a variable-rate mortgage?
Variable-rate mortgages and home equity lines of credit (HELOCs) are priced off prime, which moves in step with the BoC’s policy rate. As of mid-October 2026, prime at the big banks is currently 4.45%.
So what would a 1% hike — equivalent to four quarter-point hikes from the BoC — cost Canadians? While an increase in prime of 1% is much greater than the tightening than most forecasters expect over the next 12 months, it does provide Canadians with an excellent stress test — and an opportunity to identify what needs to be done should rates rise rapidly.
To perform this stress test, compare the average, June 2026 variable rate mortgage — at 3.9%, according to BoC data — and calculate your mortgage payment. Then redo this calculation using a variable rate of 4.9%.
In this hypothetical example, a borrower with a $500,000 balance and 25 years left on the amortization pays about $2,612 a month. At 4.90%, that payment rises to roughly $2,894 — approximately $280 more each month, or nearly $3,400 a year.
Given that 45% of new mortgage originations in December 2025 were variable-rate loans, this means a large number of Canadians will be impacted by rising rates.
What if your payment doesn’t change?
If your payment is fixed, the cost of a hike shows up somewhere else. Some lenders offer fixed-payment variable mortgages, where your payment stays the same when rates rise but more of it goes to interest.
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Using the same hypothetical $500,000 mortgage, a 1% rate increase would cut the principal portion of each payment from about $987 to $570. If that borrower did nothing else, the remaining amortization on that mortgage — the length of time before the debt is repaid — will stretch from 25 to about 31 years.
If rates climb even higher than a 1% increase, borrowers could hit their trigger rate — the point at which payments no longer cover interest. At that stage, lenders may require an increase in your monthly mortgage payment amount, or a repayment lump sum or a product change.
Homeowners with HELOCs
Keep in mind, revolving lines of credit, such as homeowner equity loans, will feel these rate hikes faster — particularly, if the borrower is only making interest-only payments.
On a hypothetical $50,000 balance at prime plus 0.5%, monthly interest would rise from about $206 to $248 — meaning the borrower is now spending an extra $500 each year on interest charges.
What to do now
A rate hike isn’t guaranteed, but given global uncertainty, now is a good time to get ahead of rising borrowing costs. To do this, here are five steps to take:
- Find out whether your mortgage is adjustable-payment or fixed-payment variable, and look up your trigger rate on your annual statement
- Calculate the impact on your budget of a 1% increase in rates
- Use prepayment privileges or bump up your regular payment now to protect your amortization
- Pay down HELOC balances but only if you don’t carry high-rate debt
- Ask your lender whether you can convert to a fixed term without penalty, and compare the rate carefully
While locking in to a fixed-rate isn’t automatically the safer bet, it can offer more security and stability for your household budget. The key is to consider whether locking in — after fixed rates have already begun to edge upwards — is a better strategy than waiting to determine the impact of a few, smaller rate increases in 2026 and 2027.
Remember, the BoC isn’t eager to tighten. As Governor Tiff Macklem put it in a Sept. 21 speech, “We don’t want to raise our policy rate and restrain growth if inflationary pressures are contained.” But if required, the BoC will act.
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Romana King, Senior Editor at Money.ca, also writes for various North American publications and the RKHomeowner blog. Her book, House Poor No More, is an Amazon bestseller and five-time award winner, including the 2022 New York CPA Society's Excellence in Financial Journalism (EFJ) Book Award.
