Oct 28, 2026
The Bank of Canada has raised its key interest rate.
For almost a year, Canadians with variable-rate debt enjoyed a reprieve. The Bank of Canada held its key interest rate at 2.25% through seven straight decisions, and prime at the big banks sat at 4.45%.
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That stretch ended on Oct. 28 when the central bank raised its overnight rate by a quarter of a percentage point to 2.5% — its first increase since July 2023.
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The hike is small but it’s meaningful. For Canadians with a mortgage, home equity line of credit (HELOC) or line of credit tied to prime, the cost shows up in days, not months. And this time the push isn’t coming from a booming economy. It’s coming from oil, which makes the road ahead harder to predict.
Why is the Bank of Canada raising rates when the economy is weak?
Why tighten now, when jobs data shows softening? The short answer is energy. The longer answer is that annual inflation rose to 3.1% in September, driven almost entirely by energy prices, while core measures — which strip out volatile items — eased below 2%.
The central bank flagged this risk months ago. In April, Bank of Canada Governor Tiff Macklem said the bank would look past the war’s immediate effect on prices, but he warned that if energy prices stay high, “we will not let their effects become persistent inflation.”
The trade-off is real. The last two jobs reports wiped out this year’s employment gains. Still, “it’s probably just gone beyond the comfort zone for the Bank of Canada,” Doug Porter, chief economist at BMO Financial Group, told Reuters ahead of the decision.
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How much more will a variable-rate mortgage or HELOC cost?
When the overnight rate moves, the big banks typically adjust their prime rates within days. A matching quarter-point move would lift prime from 4.45% to 4.70%.
Let’s say you carry a $500,000 variable-rate mortgage with a 25-year amortization, priced at prime minus 0.50%. The rate rises from 3.95% to 4.20%, and the monthly payment climbs from roughly $2,617 to $2,685. That translates to about $68 more a month, or about $816 a year.
Not everyone will get hit with a bigger bill right away. Many variable-rate mortgages have fixed payments: as interest rates rise, less of your payment goes toward principal and more toward interest. If rates climb high enough, you hit your “trigger rate” — the point where your payment no longer covers the interest owed.
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HELOCs are more direct. On a $50,000 balance at prime plus 0.50%, interest-only payments rise from about $206 to $217 a month. It’s a modest bump, but HELOC balances tend to linger, and every future hike stacks on top.
Should you worry about fixed rates and renewals?
Fixed mortgage rates don’t follow the overnight rate directly but that doesn’t mean they aren’t impacted by the rate change. Fixed mortgages are priced off Government of Canada bond yields, which react to what markets expect the central bank to do next. Two-year yields climbed more than 0.22 percentage points between the September decision and this one, so fixed rates may already have moved.
Markets don’t expect this rate decision to be one and done, either. In a Reuters poll of economists taken Oct. 21 to 23, 16 of 29 respondents expected another hike before the end of March 2027. Markets are pricing in four quarter-point hikes by the end of 2027, including this one, which would take the policy rate to 3.25%.
Those are forecasts, they are not guarantees. But if your mortgage comes up for renewal in the next year, now is the time to compare offers rather than sign your lender’s first renewal letter.
Is a rate hike good news for savers?
For savers, the rate hike is good news — kind of. Rates on high-interest savings accounts (HISAs) often track the overnight rate, so many could tick up in the coming weeks. Guaranteed investment certificate (GIC) rates, on the other hand, follow bond yields, much like fixed mortgages, and may already reflect some of the move.
The bigger question is whether your savings are keeping up. With inflation at 3.1%, an account paying 1% or 2% loses purchasing power. Holding cash or GICs inside a tax-free savings account (TFSA) at least shields the interest you do earn from tax.
What to do now
- Check your lender’s new prime rate and whether your variable payment is changing
- If your payment is fixed, ask your lender how close you are to your trigger rate
- Put extra cash toward HELOC and line-of-credit balances, which see rate increases first
- Renewing in the next four months? Ask for a rate hold, which many lenders offer for 90 to 120 days
- Don’t lock in rates out of panic; converting a variable mortgage to fixed may come with a higher rate, so compare the numbers first
- Move idle cash into a HISA or GIC, ideally inside a TFSA
A quarter point won’t break most household budgets. The bigger risk is assuming it’s the last one. The bank’s next decision is scheduled for Dec. 9, so use the next six weeks to rerun your budget at a policy rate of 2.75% or 3% and see where it pinches so that you’re prepared for whatever is announced.
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Leslie Kennedy served as an editor at Thomson Reuters and for Star Media Group, followed by a number of years as a writer and editor and content manager in marketing communications, before returning to her editorial roots. She is a graduate of Humber College’s post-graduate journalism program and has been a professional writer and editor ever since.
