Your mortgage rate could rise even if the key rate stays the same: why?
Uncertainty in the Middle East is not unrelated to the rise in mortgage rates.
Published at 5:33 PM
Since eight months, the Bank of Canada's key rate has not moved. It will remain at 2.25%, we learned on Wednesday. Yet, as your mortgage renewal approaches, you will notice that fixed mortgage rates have increased. How to explain this paradox? Le Devoir breaks down the phenomenon.
How have mortgage rates evolved in the last year?
Financial institutions often grant mortgage rates lower than the official rates they advertise. To account for this reality, the mortgage brokerage firm Ratehub.ca collected data on mortgage rates actually offered for five-year terms.
Variable rates granted by lenders averaged 3.95% in June 2025. One year later, they were 3.35%.
Fixed rates followed the opposite trend in the last year. They went from 3.84% in June 2025 to 4.04% in June 2026.
This makes new buyers think, as well as the million households that must renew their mortgage this year.
Fixed rates have increased in recent months
Average mortgage rates granted by lenders for five-year terms Chart: Le Devoir Source: Ratehub.ca
How are rates set?
It all depends on the type of rate.
Variable mortgage rates are based on the prime rate of financial institutions. The prime rate fluctuates according to the key rate of the Bank of Canada. "The majority of Canadian lenders set their prime rate about 2.20% above the key rate," explains Nesto, a lender.
Variable rates are quoted based on a spread relative to the prime rate. For example, you might be offered a loan at "prime rate minus 0.8%," illustrates Nesto. The prime rate can vary, but the spread will remain the same over the life of your loan.
Fixed mortgage rates, on the other hand, are determined by the bond rates of the Government of Canada. For example, a five-year fixed mortgage rate will vary according to the rate of five-year Canadian bonds.
"Bond rates fluctuate according to financial markets, which themselves are influenced by long-term economic and inflation forecasts," notes National Bank.
Why are fixed rates increasing right now?
"Since the beginning of the conflict in the Middle East, expectations about the economy and inflation have changed, and therefore bond rates have increased. Thus, five-year fixed rates, which are linked to these rates, have also increased," explains Francis Cortellino, market analyst at the Canada Mortgage and Housing Corporation.
But that's not all. "Banks tend to act based on expectations," explains Marc Lefrançois, real estate broker at Royal LePage Tendance.
These expectations are based in particular on forecasts, such as Wednesday's announcement by Bank of Canada Governor Tiff Macklem. Certainly, the Bank of Canada decided to keep its key rate at 2.25% for the fifth consecutive quarter, but in reality, it mainly announced its intention to potentially "adjust it quickly."
"If the conflict in the Middle East continues and the rise in energy prices begins to turn into persistent and widespread inflation, [...] consecutive increases in the key rate could then be necessary," warned Mr. Macklem in his speech. And consequently, variable mortgage rates could follow.
What to do as a homeowner?
Do you want to buy a house or condo soon? Go lock in a mortgage rate with a financial institution, recommends Marc Lefrançois, who is a trained financial analyst. "It's a free option worth taking, because 1% to 2% can make a big difference to your budget afterward," he explains.
Do you prefer to sell? "It might be better to start doing that before fall," estimates Mr. Lefrançois.
The key takeaway: don't wait until the last minute to renew your mortgage. Its rate could increase if the Bank of Canada decides to go ahead with an increase in its key rate, as it mentioned, without doing so, on Wednesday.
