What moves Canadian mortgage rates: the Bank of Canada, bond yields and lender pricing

This guide explains how rates are set, not where they are headed. For today's numbers, see our current mortgage rates, which show the date they were last updated. For when the next rate decision is, see the Bank of Canada rate announcement schedule.

Three things set your mortgage rate

The Bank of Canada and variable rates

The Bank of Canada sets a target for the overnight rate, the rate big financial institutions charge each other for one-day loans. It announces decisions on a published schedule, eight times a year. Its main job is to keep inflation close to its target, so it raises the rate to cool the economy and lowers it to support growth.

Each lender sets its own prime rate, and prime moves when the overnight rate moves, usually right after an announcement. A variable-rate mortgage is priced as prime plus or minus a set amount, such as "prime minus a discount". That amount stays fixed for your term, so your rate changes only when prime does.

What happens next depends on your product. With an adjustable-rate mortgage, your payment changes when prime changes. With a variable-rate mortgage that has a fixed payment, the payment stays the same but more or less of it goes to interest. If rates rise far enough, you can hit your trigger rate.

Bond yields and fixed rates

Fixed rates are not set by the Bank of Canada. Lenders fund fixed-rate mortgages at rates that track Government of Canada bond yields for a similar term, so a five-year fixed rate follows the five-year bond yield more closely than it follows any single Bank of Canada decision.

Bond yields reflect what investors expect over the next several years: inflation, economic growth, future Bank of Canada moves, and global markets, including U.S. yields. That is why fixed rates can rise or fall weeks before the Bank of Canada acts, or move in the opposite direction on the day it does. Our guide on how bond yields drive mortgage rates goes deeper.

Lender pricing: why two lenders quote different rates

On top of prime or bond yields, each lender adds its own margin. That margin depends on:

The lender's funding costs and appetite. Lenders price up to win business in a segment and price down when they have enough of it.

Whether your mortgage is insured. Insured mortgages (under 20% down) carry less risk for the lender and are often priced lower than uninsured ones.

The term and product. Terms, open or closed features, and prepayment privileges all carry different pricing.

How soon you close. A rate for a closing in 30 days can differ from a rate held for 120 days.

Your file. Income type, credit, property type and whether it is a purchase, switch or refinance all change the rate you are offered.

The fine print matters as much as the rate. Two mortgages with the same rate can have very different penalties for breaking the mortgage early.

What you can do about it

Hold a rate early

A rate hold locks a rate for a set window, often up to 120 days, while you shop for a home or wait for your renewal date. If rates rise, you keep the held rate. If rates drop during your hold, we request the lower rate for you.

Choose fixed or variable for the right reasons

Choose based on how much payment change you can live with, how likely you are to break the mortgage early, and the penalty each option carries. Our fixed vs variable guide walks through it.

Start your renewal early

We start the renewal conversation about 120 days before maturity, so a rate hold can cover your renewal date and you have time to compare lenders. See our renewal and refinancing guide.

Know your qualifying rate

Lenders qualify you at a stress-tested rate that is higher than the rate you pay, so a rate change can move how much you qualify for. Our pre-approval guide explains the stress test.

Compare lenders, not just rates

Because every lender prices differently, the same file can get different offers. We compare close to 100 lenders on rate, penalty terms and flexibility.