Canadian Mortgage Rates: Key Influences and Types

Man with adviser calculating mortgage rate

Canadian mortgage rates are influenced by various economic factors and the type of mortgage chosen. The Bank of Canada’s interest rate changes, bond yields, and the Prime rate play significant roles in determining these rates.

In this blog, we’ll cover the difficulty of how Canadian mortgage rates are determined. Exploring both fixed and variable-rate mortgages, and discuss their implications for homeowners and homebuyers in the current economic climate.

Fixed-Rate Mortgages: Bond Market Influence

Fixed-rate mortgages lock in an interest rate for the mortgage term, offering stability in monthly payments. The rates for these mortgages are closely tied to the bond market, particularly the five-year government bond yields. As bond yields rise or fall, fixed mortgage rates often follow suit. This connection arises because financial institutions use government bonds as a source of fixed-income revenue. To attract capital, mortgage rates must remain competitive with bond yields.

Variable-Rate Mortgages: Tied to the Prime Rate

In contrast, variable-rate mortgages fluctuate with changes in the lender’s Prime rate, which is influenced by the Bank of Canada’s policy rate. When the central bank adjusts its overnight lending rate, it impacts the Prime rate, causing variable mortgage rates to change accordingly. Homebuyers with variable-rate mortgages need to be prepared for changes in their interest rates and monthly payments in response to economic shifts.

The Bank of Canada’s Role

The Bank of Canada’s monetary policy significantly impacts mortgage rates. In times of economic uncertainty or inflation concerns, the central bank may adjust interest rates to stabilize the economy. These adjustments can directly affect funding costs for lenders, which in turn influences mortgage rates. For example, during the early days of the pandemic, funding costs for lenders increased sharply due to market nervousness, affecting mortgage rates despite lower policy interest rates.

Small Changes, Big Impact

Even minor shifts in interest rates can significantly affect homeowners and buyers. For those with variable-rate mortgages, rate increases can lead to higher monthly payments, while fixed-rate mortgage holders might face higher rates upon renewing if market rates have risen. Conversely, if interest rates are expected to decrease, homeowners might benefit from a variable-rate mortgage.

Current Mortgage Climate

The rapid increase in interest rates has caught many Canadians off guard, leading to financial stress for homeowners facing mortgage renewals or those with variable-rate mortgages. However, there’s growing speculation that the Bank of Canada might lower rates to bolster the economy. It’s crucial for homebuyers and homeowners to stay informed about market trends. Consult with financial advisors to navigate the mortgage landscape effectively.


In conclusion, understanding the factors influencing Canadian mortgage rates is crucial for making informed decisions in the real estate market. Whether considering a fixed or variable-rate mortgage, it’s essential to stay abreast of economic trends and the Bank of Canada’s policy changes. As the mortgage landscape evolves, being well-informed can help you navigate these changes and make choices that align with your financial goals.

>>Try Our FREE Mortgage Rate Calculator

Share this post with your friends

Leave a Reply

Your email address will not be published. Required fields are marked *