Will mortgage rates go up or down? Here's how to tell

This post was originally published on March 1, 2021, and was last updated on October 27, 2026.

Key takeaways:

• Variable mortgage rates follow the Bank of Canada’s overnight rate, which moves with inflation. 
• Fixed mortgage rates follow 3- and 5-year Government of Canada bond yields. 
• As of October 2026, both rate types threaten to move higher because oil prices are keeping inflation and yields up.

Mortgage rate indicators

What makes variable mortgage rates increase or decrease?

Variable mortgage rates are typically the easier of the two rate types to predict. That’s because there’s a fairly direct correlation between inflation, Bank of Canada interest rate decisions and variable mortgage rates. 

The process works as follows:

• The Bank of Canada tries to keep inflation near 2%. If inflation rises too far past the target, the Bank may raise its overnight interest rate to slow the economy and bring prices down. If the economy is weak and inflation is too low, the Bank may lower the overnight rate to encourage borrowing and business investment.
• The overnight rate directly influences financial institutions’ prime lending rates. A 25-basis point increase in the overnight rate, for example, will increase prime at all Canadian banks by the same amount.
• Variable mortgage rates in Canada are based on lenders’ prime rates. An increase or decrease to prime will have a similar, if not equal, effect on variable mortgage rates.

So if you’re curious about the future of variable mortgage rates in Canada, pay attention to Statistics Canada’s monthly inflation reports. The Bank of Canada maintains a handy graph that collects a decade of inflation data.  

When looking at inflation data, use the Consumer Price Index (CPI) for an overall sense of price activity. If CPI stays outside the Bank’s target range for several consecutive months, the possibility of a rate cut or rate hike from the Bank increases. 

Bottom line: If inflation remains beyond the Bank of Canada’s target rate, variable mortgage rates may rise. If inflation decreases and remains below the Bank’s target rate, variable rates may decline. 

What makes fixed mortgage rates go up or down?

The future of fixed mortgage rates is harder to predict, since lenders price fixed rates according to Government of Canada bond yields. Those yields fluctuate daily, and are a reflection of investors’ expectations regarding the economy.

Investors, in this case bond traders, consider a range of factors — employment, economic growth, inflation, exports, government debt — when deciding whether to buy or sell bonds. When bonds are in demand, prices increase and yields fall. When investors are offloading bonds en masse, prices fall and yields rise. Canadian bond yields are regularly impacted by action in the U.S. bond market.  

One simple, reliable measure of where fixed rates could be heading is this Bank of Canada chart that tracks Canadian bond yields. The yields to focus on are for three- and five-year bonds, which loosely correspond to three- and five-year fixed mortgage rates.

When yields shoot up and stay elevated, like they did shortly after the war in Iran began in February 2026, fixed mortgage rates often follow suit. When yields drop, which can be a sign of economic turbulence, fixed rates usually dip, too.

But there is no hard-and-fast rule dictating when fixed rates will move. If yields spike, Lender X might respond by raising its fixed rates within hours. Lender Y may hold off on hiking its fixed rates to maintain a competitive advantage.

Bottom line: If three- and five-year Government of Canada bond yields rise and stay elevated, lenders often respond by increasing their three- and five-year fixed rates. If yields decrease, fixed rates may decline, too. 

Will mortgage rates go up or down in Canada in 2026?

Economic conditions as of October 2026 point to interest rates remaining elevated. This is mostly due to the war in Iran.

The war has caused oil prices to spike, dragging government bond yields with them. Lenders have responded to those higher yields by hiking their fixed mortgage rates several times between March and October. 

By that logic, fixed mortgage rates aren’t likely to decline until yields fall. For yields to decline to a significant degree, either the war in Iran has to end or shipping traffic through the Strait of Hormuz has to resume, which would take pressure off of global oil prices. 

Will the Bank of Canada raise rates again in 2026?

Possibly. The Bank of Canada increased its overnight rate from 2.25% to 2.50% on October 28. It was the Bank's first rate increase in over three years, and it quickly added 25 basis points to variable mortgage rates.

The Bank now expects inflation to hit 3.5% by the end of the year. If inflation meets or exceeds the Bank's expectations, another rate hike could be coming as soon as December or January.

Other factors that can influence mortgage rates

• • Your personal finances. Lenders will consider your credit score, credit history, debt levels and savings to determine the personalized rate you receive. 
  • Black swan events. An unforeseen event, like the COVID lockdowns, the Great Financial Crisis or a war can push rates in either direction.
  • Competition. Mortgage rates rarely move up or down at the same time or to the same degree at all lenders. Some lenders may delay increasing their mortgage rates or drop their rates by a few basis points more than their competitors to maintain an edge.

How do banks set mortgage rates?

The main cost your bank needs to account for when pricing out your mortgage rate is the “funding cost”, which is the cost of borrowing the money that it will lend to you. 

Even if the bank funds your mortgage with cash it has on hand, that money will be tied up in a mortgage instead of some other investment. In that case, the funding cost is an opportunity cost, meaning it “lost” that amount by investing in you and not elsewhere.

On top of the funding cost, mortgage providers need to earn enough to cover operating costs: staff, real estate, marketing, dividends to shareholders, etc. They also need to make a certain amount of profit and account for the risk of default.

Credit is also subject to supply and demand. When the appetite for borrowing money is high, the cost of credit rises, which drives rates higher. When demand for credit is low, the cost of borrowing becomes cheaper. 

Worried about rates? Talk to a mortgage broker

As a home buyer or homeowner, it’s not your job to understand the details of how mortgage rates work. That’s what a mortgage broker is for.

Even the best brokers in Canada can’t predict the future of mortgage rates 100% of the time, but they can explain to you the implications of choosing one rate type over another and give you a sense of where rates might be heading. 

A broker can also compare rates, negotiate on your behalf and get you pre-approved for a mortgage. A pre-approval generally secures a rate hold for up to 120 days. Lock in a rate and you won’t need to worry nearly as much about whether rates are going up or down.

Also read:

• Mortgages and inflation: How do they affect each other?
• How does the rising stress test impact mortgage affordability?
• Should you borrow for your down payment?
• The dos and don’ts of getting a mortgage pre-approval
• Should I buy a house in a recession?
• The trigger rate: Everything you need to know