How the Bank of Canada Affects Your Mortgage Rate (Simplified)

If you’ve ever wondered why your mortgage rate changes—or why it might go up or down when you renew—it’s largely due to decisions made by the Bank of Canada. But what exactly does the Bank of Canada do, and how does it impact your mortgage? Let’s break it down in plain English.

What Is the Bank of Canada?

The Bank of Canada is our country’s central bank. Think of it as the financial “referee” that helps keep the economy stable. Its main job is to ensure that inflation stays low and predictable, aiming for a target of 2% within a range of 1% to 3% .

What Is the Policy Interest Rate?

The policy interest rate, also known as the overnight rate, is the interest rate at which major banks borrow and lend money to each other for short periods. The Bank of Canada sets this rate, and it serves as a benchmark for other interest rates in the economy, including those for mortgages.

How Does This Affect Mortgage Rates?

When the Bank of Canada changes the policy interest rate, it influences the rates that banks offer to consumers. Here’s how it works:

• Variable-Rate Mortgages: These are directly affected. If the Bank raises the policy rate, your variable mortgage rate—and thus your monthly payment—will likely increase.

• Fixed-Rate Mortgages: These are influenced by the bond market, which reacts to the Bank’s policy rate changes and economic outlook. So, while not directly tied, fixed rates often move in the same direction as the policy rate.

Why Does the Bank Change the Rate?

The Bank adjusts the policy rate to control inflation and support economic growth.

• If inflation is too high: The Bank may increase the rate to cool down spending.

• If the economy is slowing: The Bank may lower the rate to encourage borrowing and investment.

For example, in April 2025, the Bank held the policy rate at 2.75% due to uncertainties from U.S. trade policies, aiming to balance inflation control with economic growth .

What Does This Mean for You?

Understanding the Bank’s role can help you make informed decisions about your mortgage:

• Renewals: If your mortgage is up for renewal, be aware that rates may have changed due to shifts in the policy rate.

• Choosing Between Fixed and Variable Rates: Consider how comfortable you are with potential rate changes influenced by the Bank’s decisions.

• Budgeting: Keep an eye on the Bank’s announcements to anticipate possible changes in your mortgage payments.

Stay Informed

The Bank of Canada announces its policy rate decisions eight times a year. You can check their schedule and read their statements on their official website:  .