Oct 30, 2026
If you carry a variable-rate mortgage or a line of credit, your borrowing costs already went up. For the first time since 2023, the Bank of Canada (BoC) has raised its key interest rate, and Canada’s biggest banks passed that increase along to Canadians within hours.
The quarter-point move, announced Oct. 28, lifts the policy rate to 2.5%, up from 2.25% where it sat unchanged for more than three years. One portfolio manager described it as a pre-emptive strike against inflation, while another economist warned it’s likely the first step of several.
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For households that are already struggling to manage high fuel costs and a shaky job market, a single quarter point may not sound significant. Whether you should do anything about it depends on what comes next.
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Why did the Bank of Canada raise rates now?
That the Bank raised rates shouldn’t have come as a surprise. The BoC is worried about inflation spreading. CPI inflation has been around 3% since April and is expected to hit about 3.5% by the end of the year, driven by persistently high oil prices, according to the central bank’s October rate decision. The bank said it hiked rates to reduce the risk that continuing high energy prices spread broadly to the prices of other goods and services.
Earl Davis, head of fixed income and money markets at BMO Global Asset Management, the investment arm of Bank of Montreal, told Bloomberg that the BoC is trying to get ahead of consumers who might spend more now to beat expected price increases — which is why he sees it as a pre-emptive hike. He also thinks the move came too early, citing market volatility he expects to return in the fourth quarter.
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Could rates rise again in December?
Another hike in December is possible, though it’s not a guarantee the bank will raise rates again before the new year. The BoC said “There could be a need to increase the policy rate further,” but it added that it would proceed carefully given the uncertainty.
Tu Nguyen, an economist at RSM Canada, an audit, tax and consulting firm, was more matter of fact. She told Bloomberg this is “the first hike in a hiking cycle” and said Canadians should expect the next increase as early as December, with more to follow in 2027.
Not everyone sees a steep climb ahead. Davis noted that markets had been pricing in more than 100 basis points of hikes, including this one, and he expects that to shrink to about 75. A weak job market could also slow the BoC down. Canada shed a net 68,300 jobs in September, erasing this year’s employment gains.
The next rate announcement is scheduled for Dec. 9 at 9:45 am ET.
How much more will you pay on a variable mortgage or HELOC?
All six of Canada’s biggest banks raised their prime lending rates to 4.70%, effective Oct. 29, according to Canadian Mortgage Trends. TD’s separate mortgage prime rate is expected to rise to 4.85%.
For example, on a $500,000 variable-rate mortgage, a 0.25 percentage-point increase adds about $1,250 in interest over a year, or roughly $104 a month. A $50,000 home equity line of credit (HELOC) costs about $125 more a year. If the BoC hikes again next month, those figures roughly double.
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How that increase impacts your household depends on your mortgage. With an adjustable-payment variable mortgage, your payment rises. With a fixed-payment variable mortgage, your payment will stay the same, but more of each payment goes toward interest, so you pay down principal more slowly.
Fixed rates aren’t the safe harbour you might assume. Those rates rose steadily in September as five-year Government of Canada bond yields climbed.
There is some upside for savers, though it may be modest. The Globe and Mail points out that banks are often quick to raise what they charge borrowers but slower to raise what they pay on deposits. If your savings account rate doesn’t move, your best move is to shop around rather than wait for your bank to adjust.
What to do now
- Check whether your variable mortgage has adjustable or fixed payments, and ask your lender how close you are to your trigger rate
- Pay down prime-linked debt such as HELOCs and personal lines of credit first, before paying down fixed-rate debt
- If you renew in the next 12 months, ask your lender or broker about a rate hold now
- Before considering locking in a fixed rate, compare the fixed rate on offer with the cost of one or two more hikes, and ask whether conversion triggers any fees
- Budget for your mortgage payment to rise another 0.25 to 0.50 percentage points
- Compare high-interest savings and GIC rates beyond your main bank, including inside your TFSA
The Bank has signalled it will move cautiously, so a December hike is a real possibility rather than a certainty. Your goal over the next six weeks is to know what another quarter point would cost your household, and whether or not you can absorb it.
For the housing market, the stakes are already clear. As Phil Soper, CEO of Royal LePage, a national real estate brokerage, told The Canadian Press, the real question is whether this is a one-time adjustment or the start of sustained tightening. As he put it, “higher borrowing costs will only deepen that challenge.”
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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.
