Canadians could see monthly mortgage payments climb following interest rate hike
Got a mortgage? You might want to take another look at your monthly budget. The Bank of Canada’s latest interest rate hike could mean higher monthly payments for some Canadian homeowners, particularly those with variable-rate mortgages.
On Oct. 28, the Bank of Canada increased its interest rate for the first time in over three years, bringing it to 2.5 per cent. And while that might sound like a pretty small number, even a modest increase can make a big difference to those dealing with hundreds of thousands of dollars in mortgage debt.
Just how much more could some homeowners be paying?
According to Leah Zlatkin, a licensed mortgage broker and expert at LowestRates.ca, a 25-basis-point increase could add approximately $15 per month for every $100,000 in mortgage debt.
To put that into perspective, someone in Canada with a $300,000 mortgage could pay an extra $45 per month, or $540 a year. A homeowner with a $500,000 mortgage could see their payments increase by $75 monthly, or $900 annually.
For those carrying a $600,000 mortgage, that’s an additional $90 per month, or $1,080 a year. And if your mortgage is closer to $1 million, you could be looking at an extra $150 per month, adding up to $1,800 annually.
Of course, the actual increase will depend on one’s mortgage terms, lender, and how their rate is structured. Those with fixed-rate mortgages generally won’t see their monthly payments change until renewal.
Canadians shopping for a mortgage will need to think carefully about whether a fixed or variable rate makes more sense.
Variable mortgages may still offer lower starting rates, but those savings could come with a little more uncertainty.
“We need to be prepared for the possibility of more hikes,” says Zlatkin, despite seeing some clients drawn to variable mortgages because of the lower rates. “If rates keep going up, the savings people were counting on could disappear sooner than they expected.”
While the latest interest rate hike follows seven consecutive holds, borrowers who aren’t comfortable gambling on where rates might go next could find some much-needed peace of mind with a fixed mortgage.
But is it better to buy now or wait longer for a better deal? Zlatkin says the latter isn’t necessarily the best strategy.
“If mortgage rates continue to rise, buyers might still qualify for a mortgage, but for a smaller amount,” she says. “That could mean looking at a less expensive home, compromising on size or location, or needing a larger down payment to afford the home they want.”
In other words, a cheaper home doesn’t necessarily mean a cheaper mortgage.
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With inflation, trade uncertainty and more interest rate decisions still ahead, Canadians will want to keep a close eye on their budgets before making their next big move.
Bank of Canada governor Tiff Macklem has signaled that further interest rate increases remain possible as the central bank works to keep inflation under control.
The Bank’s latest projections suggest inflation could reach approximately 3.5 per cent by the end of 2026, remain above three per cent through much of 2027 and eventually return to its two per cent target by mid-2028.
The next interest rate announcement is scheduled for Dec. 9, followed by decisions on Jan. 27 and March 3, 2027.
With files from Kenneth Chan