A Quarter-Point Rate Rise Meets Canada's Last Big Mortgage Renewals

The Bank of Canada raised its policy rate by a quarter of a percentage point on October 28, and some mortgage holders felt it the next morning, when bank prime rates began to follow.

The new policy rate is 2.5 per cent. The decision was the Bank's first increase since 2023, as Maple reported on October 30.

Most Canadian mortgages do not move with prime. A fixed-rate mortgage is priced when it is signed or renewed, and the price follows the bond market more closely than the Bank's overnight rate. The October decision therefore lands on two groups of households at two different speeds and in two different sizes.

Why the Bank moved

The Bank said in its October 28 press release that it raised the rate "to reduce the risk that continuing high energy prices spread broadly" into other prices. Inflation as measured by the consumer price index has been around 3 per cent since April, according to the release, and the Bank expects it near 3½ per cent by the end of the year.

Governing Council left the next step open. "There could be a need to increase the policy rate further," the release said, while adding that the council "agreed to proceed carefully." The next decision is scheduled for December 9.

Maple's report on the decision, "Bank of Canada Raises Its Rate to 2½%, the First Increase Since 2023", sets out the forecasts behind it, and Maple's October 31 report, "Canada's Economy Was Flat in August, and the Loonie Ended October Firmer" covers the growth backdrop.

Two doors into the household budget

For mortgage holders, a rate increase arrives in two ways.

1. Variable-rate loans priced off prime. Banks set prime and move it with the policy rate. National Bank of Canada lifted its prime to 4.70 per cent effective October 29, and a variable-rate mortgage, which pays prime plus or minus a fixed margin, rose by the full quarter point at lenders that did the same. On a C$400,000 balance the increase works out to about C$1,000 a year in extra interest by my own calculation, before the balance declines. Some variable mortgages carry a fixed payment; for those the monthly amount stays the same and more of it goes to interest.
2. Fixed-rate mortgages at renewal. These pay nothing extra until the term ends. At renewal the new rate tracks the yield on Government of Canada five-year bonds, which reflects where investors expect the policy rate to go over the next five years. The five-year benchmark yield was 3.57 per cent on October 27, 3.62 per cent on decision day and 3.58 per cent on October 29, according to the Bank's daily series. The yield moved little around the decision.

The posted rates the chartered banks report to the Bank of Canada show the same split. Their five-year conventional mortgage rate was 6.19 per cent in each of the four weekly readings from October 7 to October 28. Posted rates are list prices, well above what most borrowers negotiate, and they did not change in the four weeks around the decision.

The first door reaches more borrowers, and each by less: on the C$400,000 example the added interest is about C$83 a month. The Canada Mortgage and Housing Corporation's Residential Mortgage Industry Report, Fall 2026 edition, puts variable-rate mortgages at 36 per cent of mortgage terms in June 2026 in its chart of the share of mortgage terms, well below their peak share in early 2022.

The renewals that matter most are 2021's

The larger exposure sits with households that locked in five-year fixed rates during the pandemic, when rates were very low, and are renewing now.

The Bank's Financial Stability Report, published in May 2026, sized this group. Pandemic-era five-year fixed-payment mortgages renewing over the following year were "about 12% of all outstanding mortgages in Canada," and "on average, these borrowers will see their payments increase by about 15%."

A second, slightly larger group of renewals, made up of variable-payment and shorter fixed-term loans, would on average "not see their payments change at renewal," according to the Bank's report.

As an illustration, a household paying C$2,000 a month before renewal would pay about C$2,300 after it at that average increase. That figure is mine, built on the Bank's average; individual increases vary with the original rate, the remaining balance and the new term.

The Bank also dated the end of the wave. "By the second half of 2027, nearly all mortgage holders facing large payment increases will have renewed," the Bank's report said. CMHC's fall report reached a similar view: "The largest renewal shock has likely passed," while some borrowers "will still face higher payments, particularly those renewing 5-year mortgages taken out in 2021."

A quarter point on the overnight rate changes this picture at the margin. It does not change the main driver, which is the distance between a 2021 contract rate and today's five-year yield.

How the borrowers are holding up

The household figures going into the decision were steady, with pressure concentrated in a few places.

Statistics Canada reported on September 11 that the household debt service ratio, the share of disposable income going to principal and interest, declined to 14.52 per cent in the second quarter of 2026. The same release showed mortgage interest payments rising by "the largest amount in the last two years," while household debt fell as a share of disposable income.

Arrears remain low at the banks and higher elsewhere. CMHC's fall report tracks mortgages 90 days or more behind on payments; mortgage investment entities are the private lenders that take on borrowers the banks decline.

Source: CMHC, Residential Mortgage Industry Report, Fall 2026.

CMHC expects Ontario "to record the largest and most sustained increase" in delinquencies through mid-2027, with more moderate upward pressure in British Columbia and Atlantic Canada.

The Bank's report looked at arrears across all forms of credit, which were broadly stable at about 1.3 per cent for mortgage holders and about 2.5 per cent for people without a mortgage.

What the stress test does at renewal

Canada's federally regulated lenders qualify uninsured borrowers at a minimum rate set by the Office of the Superintendent of Financial Institutions: "the greater of the mortgage contract rate plus 2% or 5.25%."

Renewing households have mostly cleared that bar. The Bank's report found that "more than 90% of borrowers who renewed in the past 12 months did so at rates below their qualifying rates." It also estimated that at current home prices about 4 per cent of borrowers renewing in 2027 would not be able to refinance, mostly because they would have too little equity to meet lenders' requirements. The Toronto share is about twice the national one, and a further 10 per cent fall in home prices would raise both, in the Bank's estimate.

Renewal itself does not repeat the test. OSFI's guideline B-20 says lenders are "not expected to re-apply the qualification rate assessment to existing borrowers that are renewing mortgages," and OSFI's minimum-qualifying-rate page says it does not expect lenders to apply the rule to uninsured straight switches to another lender at renewal, provided the amortization and the loan amount do not increase. A household that can keep paying can usually shop its renewal.

What decides the next year

The October increase is the smaller of the two forces on Canadian mortgage payments. The larger one is a renewal wave the Bank expects to be mostly complete by the second half of 2027, priced off a five-year bond yield rather than the overnight rate.

Arrears of 0.28 per cent leave the banks room to absorb a rise, and their next quarterly reports will show whether provisions for credit losses moved with it. The December 9 decision matters most to borrowers on variable terms, which CMHC puts at 36 per cent of mortgage terms in June 2026. For the 2021 cohort, the number to follow is the five-year bond yield on the day the renewal letter arrives.