Canada Is Losing Jobs, But Mortgage Rates May Still Rise. Here’s What to Do.
Canada lost 68,000 jobs in September. If you're renewing a mortgage or buying a home in the next year, this is a major signal you need to watch. Normally, job losses would make the Bank of Canada consider lowering interest rates to stimulate the economy. But we're in a strange situation. The market is still pricing in an 88% chance of a rate hike in December, according to reporting from BNN Bloomberg in 2026, despite the weak employment numbers from Statistics Canada in 2026. This combination of a weakening job market and rising interest rates is the worst possible mix for homeowners, especially those with renewals coming up from the pandemic-era lows. So what's really going on, and how does it affect your mortgage? Let's break down the conflicting forces at play and what you should do about it.
Key Takeaways
- A Conflicting Signal: Canada's economy lost 68,000 jobs in September 2026, yet markets still predict a high probability of a Bank of Canada interest rate hike before the end of the year.
- Forces Pushing Jobs Down: Four structural issues are weakening the job market: reduced immigration, public sector job cuts, the impact of US tariffs, and a wave of retirements from an aging workforce.
- Forces Pushing Rates Up: At the same time, four inflationary factors are creating pressure for a rate hike: high oil prices, rising wages, the increased cost of goods from tariffs, and the US Federal Reserve raising its own rates.
- Your Strategy Is Time-Sensitive: Your best course of action depends on your timeline. If you are buying or renewing in the next four months, securing a rate hold now is critical to protect yourself from potential increases.
Why Is Canada's Job Market Slowing Down?
The recent job losses aren't a temporary blip. They're the result of four slow-moving, structural forces that don't just bounce back in a month. First, fewer people are moving to Canada. The federal government has adjusted its targets, with new temporary resident arrivals targeted to decrease to 385,000 in 2026, according to Immigration, Refugees and Citizenship Canada (IRCC). This has a direct impact on sectors like education, which lost 35,000 jobs in September alone. I have family members with master's degrees who have been laid off from colleges because there simply aren't enough students. Second, governments are tightening their belts. The public sector has cut jobs for four straight months, shedding 70,000 positions in September 2026, as reported by Benefits and Pensions Monitor in 2026. Third, US tariffs are hitting Canadian businesses that sell south of the border. We've had clients tell us they were laid off directly because of tariffs impacting their employer. Finally, Canada's workforce is getting older. A lot of people are hitting retirement age, and the share of Canadians working or looking for work is at its lowest point in nearly 30 years, outside of the pandemic.
If Jobs Are Falling, Why Would Interest Rates Go Up?
Even with a weaker job market, four other powerful forces are pushing interest rates up. The first is the price of oil. High gas prices increase the cost of everything, from the food in your grocery cart to the packages delivered to your door, fueling inflation. Second, wages are still rising for those who have jobs. According to Statistics Canada, average hourly wages grew 2.3% year-over-year in September 2026. As an employer, I see the pressure to pay people more. While that's good for employees, it gives people more money to spend, which contributes to the inflationary cycle the Bank of Canada is trying to break. Third, those same tariffs that cost jobs also make imported goods more expensive, pushing prices higher. The fourth and perhaps most significant factor is the United States. The US Federal Reserve raised its interest rate in September. Historically, when the US Fed raises rates, the Bank of Canada almost always follows within about five months. This puts the Bank of Canada in a very difficult position. If they cut rates to help the job market, inflation could get worse. If they raise rates to fight inflation, more people could lose their jobs and struggle with higher mortgage payments.
How Does This Tug-of-War Affect Your Mortgage?
This economic tug-of-war directly impacts you in three key areas: your monthly payment, your ability to qualify for a loan, and the security of an upcoming home purchase. A small rate hike might not seem like much, but it adds up. A 0.25% increase on a $500,000 mortgage with a 25-year amortization adds about $67 to your monthly payment. Two or three of those hikes can start to put a real strain on your budget. More importantly, your employment status is critical for your mortgage options. If you're renewing with your current bank, they will likely only check your credit. But if you want to switch to a new lender for a better rate, consolidate debt, or access home equity, they will re-verify your income. If you've lost your job or recently changed careers, you might be stuck with whatever renewal offer your current bank gives you. For those buying a home, some lenders will even re-check your employment status right before the closing date. We've seen deals fall apart because a buyer was laid off between getting approved and getting the keys, forcing them to delay or even cancel their purchase.
What Four Signs Should You Watch Before the Next Rate Decision?
You don't need to be an economist to see which way the winds are blowing. By keeping an eye on four key indicators, you can get a good sense of what the Bank of Canada is likely to do next. First, watch the next inflation report on October 19th. If prices are still rising quickly, the odds of an October 28th rate hike increase significantly. If inflation is cooling, the Bank will probably wait until December. Second, pay attention to gas prices. If you see prices at the pump climbing, it's a strong sign that overall inflation will follow, putting more pressure on the Bank to raise rates. Third, look for the next jobs report in early November. If job losses continue to mount, it becomes much harder for the Bank to justify a rate hike. If the job market bounces back, a December increase becomes more certain. Finally, the most important report is the one from your own workplace. Are there hiring freezes? Is overtime being cut? Are people not being replaced when they leave? These are often the earliest signs of economic trouble and can appear months before official layoff announcements.
What Should You Do About Your Mortgage Right Now?
Your best move depends entirely on your personal situation and timeline. There isn't a one-size-fits-all answer, but here is a clear plan based on where you are today.
- If you're on a variable-rate mortgage: Ask yourself if you could comfortably handle a payment increase of a few hundred dollars per month for the next couple of years. Compare your current rate to the fixed rates available today. If your variable rate is still more than 1% lower than the current fixed-rate options, it might not make sense to switch and lock in.
- If you're renewing in the next 4 months: Stop waiting. Contact your current lender and get a renewal offer on the table now. Then, reach out to a mortgage broker to see what other lenders can offer. This gives you a safety net and negotiating power.
- If you're buying in the next 4 months: Get a rate hold immediately. We can lock in a rate for you for up to 120 days. This protects you if rates go up, but if they go down, you can still get the lower rate. With property values having dipped slightly, a rate hold lets you take advantage of the best of both worlds.
- If you're renewing in 2027: If you're within the next 8 to 10 months of your renewal date, especially if you're with a lender like TD, contact us. We have access to replacement policies that allow us to lock in a new rate for you much earlier than you could on your own.
Frequently Asked Questions
Will the Bank of Canada cut rates because of job losses?
It's unlikely in the short term. While significant job losses would normally lead to rate cuts, the Bank of Canada is currently more focused on fighting high inflation. Forces like rising wages, high oil prices, and the US Federal Reserve's rate hikes are creating strong inflationary pressure. The Bank is stuck between weakening employment and persistent inflation, and for now, fighting inflation appears to be its top priority. Most economists are debating a hold versus a hike, not a cut.
How much does a 0.25% rate hike increase my mortgage payment?
A 0.25% interest rate increase adds approximately $13 per month for every $100,000 of mortgage debt, assuming a 25-year amortization. For a homeowner with a $500,000 mortgage, this translates to a payment increase of about $67 per month. While one increase may be manageable, several consecutive hikes can add hundreds of dollars to your monthly housing costs, significantly impacting your budget.
Can I switch lenders for a better rate if I lose my job?
Generally, no. When you switch to a new mortgage lender, they will fully underwrite your application, which includes verifying your income and employment. If you have recently lost your job, you will not meet the income requirements to qualify for a new mortgage. In this situation, your only option is typically to accept the renewal offer from your existing lender, as they usually don't re-qualify your income for a simple renewal.
Is now a good time to buy a house in Canada?
It can be, provided your income and job are secure. The current economic uncertainty is pushing some potential buyers to the sidelines, which creates more opportunities and negotiating power for those who are in a strong financial position. If you have a stable job and can comfortably afford the payments at today's rates, you may find less competition and more favourable prices than you would have a year ago. However, it's critical to be prepared for potential rate increases.
What is a mortgage rate hold?
A mortgage rate hold, or pre-approval, is a guarantee from a lender to give you a specific interest rate for a set period, typically 90 to 120 days. This is a crucial tool for anyone buying a home or renewing a mortgage in a rising rate environment. It protects you from rate increases while you shop for a home or finalize your renewal. If rates go down during your hold period, you can still get the lower rate. It offers protection with no downside.
The Canadian economy is at a crossroads, with jobs getting weaker while prices remain high. The Bank of Canada is stuck in the middle, and its next move will determine the cost of borrowing for millions. By preparing yourself based on your own financial fundamentals, you can weather the uncertainty no matter which way things go. If you want to see how your current mortgage stacks up or what your payments might look like, use our free mortgage checkup tool at rate.getflowmortgage.ca. For a personalized plan, email me at alex@getflowmortgage.ca or call 250-869-5334.
By Alex McFadyen, Mortgage Broker & CEO, Flow Mortgage Co.