Bank of Canada Raises Rates: Should You Lock In Your Variable Mortgage?
The Bank of Canada raised its key interest rate by a quarter-point on October 28, 2026, and if you have an adjustable-rate mortgage, your payment is going up. The Bank’s policy rate is now 2.5%, as confirmed in their October 2026 announcement, which immediately pushed the prime rate at major Canadian banks to 4.70%. For you, this means a payment increase of about $68 per month for every $500,000 of mortgage debt. This brings up the big question: with more hikes potentially on the way, is it time to lock your variable-rate mortgage into a fixed rate? The answer depends on your personal financial situation and the specific rate offers available to you. The key is calculating your 'cushion', or how many more rate increases your variable mortgage can absorb before a fixed rate would have been the cheaper option from the start. I'm going to show you exactly how to figure that out.
Key Takeaways
- Rate Hike Details: On October 28, 2026, the Bank of Canada increased its overnight rate to 2.5%, causing major banks to raise their prime rates to 4.70%.
- Immediate Impact: Adjustable-rate mortgage payments will increase by approximately $68 per month for every $500,000 borrowed.
- The Fixed vs. Variable Math: Your decision should be based on the 'cushion' between your variable rate and a fixed-rate offer. This spread determines how many future hikes you can withstand before variable becomes more expensive.
- Market Expectations: Financial markets are currently pricing in three more quarter-point rate hikes by the end of 2027.
- Who Should Act: If your budget is tight or your rate cushion is small (meaning it would be erased by just one more hike), you should seriously consider locking into a fixed rate for payment stability.
Why Did the Bank of Canada Raise Rates Again?
The Bank of Canada raised rates to combat persistent inflation. Despite an unemployment rate of 6.5% in September 2026 and new US tariffs expected to slow economic growth, the Bank chose to act. In its own words, it is trying to “reduce risk that continuing high energy prices spread broadly to the prices of other goods and services.” Canada's annual inflation rate was 3.1% in September 2026, according to Horizon Weekly's 2026 reporting, and the Bank now forecasts it will hit 3.5% by the end of the year. They don't expect inflation to return to their 2% target until the middle of 2028. This long timeline suggests that interest rates could remain elevated for a while. Governor Tiff Macklem said they considered holding rates steady but ultimately decided to raise them, stating they will take future decisions “one meeting at a time.”
How to Calculate if a Fixed or Variable Rate is Cheaper
You can determine your personal breakeven point with a simple calculation. First, find the gap between the best fixed-rate mortgage you're offered and your current variable rate. Then, divide that gap by 0.25 (the size of a standard rate hike). The result is your 'cushion', the number of quarter-point rate increases you can absorb before a fixed rate would have been cheaper over the term. For example, let's say the gap is just under 0.80%. Dividing that by 0.25 gives you a cushion of three rate increases. If there are no more hikes, staying variable saves this homeowner about $18,900. With one more hike, the savings are $13,100. With two, it's $7,300. At three more hikes, it's a tie. If we see four more hikes, the fixed rate would have been about $3,700 cheaper. This shows why you can't just look at the headline rate; you need to understand the math and how to predict mortgage rates for your own situation.
How Many More Rate Hikes Are Coming?
While no one can say for sure, financial markets are currently pricing in a total of four increases by the end of 2027, including the one that just happened. This implies the market expects three more hikes. Just a few weeks ago, the market saw a very low chance of this October hike, so sentiment can change quickly. My personal view is that we could see one or two more increases in the next six months. If the Bank holds rates in December, I wouldn't assume the hiking cycle is over. They could easily raise rates at their next meeting in late January 2027. The key takeaway is that with markets pricing in three more hikes, a variable-rate mortgage with a three-hike cushion is essentially at a tie with a fixed rate. Any rate offer with a smaller cushion now tilts in favor of locking in.
What Should You Do Based on Your Mortgage Timeline?
Your best strategy depends entirely on when your mortgage is up for renewal. You shouldn't make a panicked decision, but you should have a plan.
- Renewing in the next 4 months: You need to act now. You can get a rate hold for up to 120 days, which is free and protects you against any further rate increases while you finalize your renewal. This is a critical step I recommend all our clients take.
- Renewing in 4 to 12 months: It's time to start paying close attention. Understand your numbers, calculate your rate cushion, and see what's available. In some cases, it might be worth paying a penalty to refinance early if it saves you more in the long run. Breaking a mortgage can be expensive, so you need to run the numbers on your specific Canadian mortgage penalties first.
- Renewing in 1 to 3 years: It probably doesn't make sense to make a move right now. The landscape could look very different in a year. Your best bet is to monitor the key economic reports, like the jobs report on November 6th and the inflation report on November 16th, to see how they might influence the Bank's next decision on December 9th.
Who Should Lock In Their Variable Rate Immediately?
You should seriously consider locking in your variable rate if you fall into one of two categories. First, if an extra $200 to $350 a month in your mortgage payment would strain or break your household budget, the certainty of a fixed payment is worth it. The peace of mind that comes from knowing your largest expense won't change is valuable. Second, if you've done the math and your rate 'cushion' is only one rate increase or less, the odds are no longer in your favor. With markets pricing in three more hikes, a one-hike cushion is not enough protection. However, you shouldn't lock in a hurry if you think you might sell or refinance in the next couple of years. Breaking a fixed-rate mortgage often comes with a much larger penalty than a variable one.
Frequently Asked Questions
What is the current Bank of Canada interest rate?
As of the announcement on October 28, 2026, the Bank of Canada's target for the overnight rate is 2.5%. This was a 0.25% increase from the previous rate of 2.25%. This policy rate is the primary tool the Bank uses to control inflation and influences interest rates across the Canadian economy, including mortgage rates.
How does the Bank of Canada rate affect my mortgage?
The Bank of Canada's policy rate directly impacts variable-rate and adjustable-rate mortgages. When the Bank raises its rate, commercial banks raise their prime rates by the same amount, which in turn increases the interest rate on any loan tied to prime. Fixed mortgage rates are not directly tied to the Bank's announcements but are more closely linked to the bond market, which often moves in anticipation of the Bank's actions.
How much did my payment go up after the latest rate hike?
For homeowners with an adjustable-rate mortgage (where the payment changes with the prime rate), the October 28, 2026 rate hike will increase your monthly payment by about $13.50 for every $100,000 of mortgage debt. For a $500,000 mortgage, that works out to an increase of approximately $68 per month.
Is it a good time to choose a variable-rate mortgage?
It depends on your risk tolerance and the current rate environment. Historically, variable rates have cost less than fixed rates over time. However, in a rising rate environment like the one we are in now, that advantage shrinks. The decision depends on the spread between the fixed and variable rates offered to you and how many more hikes you believe are coming. If the spread is small, a fixed rate offers valuable security.
When is the next Bank of Canada rate announcement?
The next scheduled interest rate announcement from the Bank of Canada is on December 9, 2026. Before that date, two key pieces of economic data will be released that will heavily influence the Bank's decision: the Labour Force Survey (jobs report) for October on November 6th, and the Consumer Price Index (inflation report) for October on November 16th.
If you're not sure where you stand or want a professional opinion on your renewal offers, my team can help. We can review your situation, run the numbers, and let you know if it makes sense to switch lenders or products for a more strategic long-term option. Check your rate at rate.getflowmortgage.ca, or reach out to me directly by email at alex@getflowmortgage.ca or by phone at 250-869-5334.
By Alex McFadyen, Mortgage Broker & CEO, Flow Mortgage Co.
What to do next
Run your own numbers in our renewal calculator, or read the mortgage renewal guide for the full picture. If you want a second set of eyes, book a free call and we'll go through it with you.