Bank of Canada Raises Rate to 2.5% — October 28, 2026
Lori Lalonde • October 28, 2026
On October 28, 2026, the Bank of Canada raised its key interest rate by 0.25%, bringing it to 2.5%. If you have a mortgage, are shopping for a home, or have a renewal coming up, this decision matters. Here is a plain-language look at what changed, why it happened, and what it could mean for you.
Why the Bank of Canada Raised Rates
The short answer is inflation. Three factors pushed the Bank to act:
- High energy prices. Ongoing conflict in the Middle East has kept oil prices elevated for months. Inflation has been running around 3% since April and is expected to reach about 3.5% by the end of the year.
- Rising business costs. Higher fuel prices make it more expensive to produce and ship goods. Imported industrial and electronics prices have also increased. The Bank is concerned these costs will eventually be passed on to consumers.
- A stronger economy than expected. Canada's economy grew 3.3% in the second quarter — faster than forecast. Consumer spending has been solid and business investment has picked up. A stronger economy can fuel more inflation, which the Bank wants to get ahead of.
What This Means for You
Here is how the rate increase could affect you depending on your situation:
- Variable-rate mortgage: Your rate will go up by approximately 0.25%. Depending on your mortgage structure, your payment may increase or more of your payment will go toward interest rather than principal.
- Home equity line of credit (HELOC): The interest on your outstanding balance will increase. If you carry a balance, expect slightly higher monthly costs.
- Fixed-rate mortgage: No immediate change. Your rate is locked in until your term ends. However, fixed rates in the market may stay elevated, which matters when you renew.
- Renewal coming up: Now is the time to start planning. You can typically lock in a rate up to 120 days before your renewal date. Talk to a mortgage professional to explore your options early.
- Planning to buy: Higher rates affect how much you qualify for. Getting pre-approved sooner rather than later gives you a clear picture of your budget before rates potentially move again.
What to Expect Next
The Bank of Canada was clear that further increases are possible, but said it will proceed carefully given the uncertainty in the economy — particularly around trade and energy prices. Here is the outlook they shared:
- Inflation is expected to average around 3% through 2027 before coming back to 2% by mid-2028.
- The Canadian economy is expected to grow about 1% in 2026 and 2% in 2027 and 2028.
- The next rate announcement is December 9, 2026 .
There is still considerable uncertainty, especially around Canada-US trade relations and how long energy prices stay high.
Frequently Asked Questions
What is the Bank of Canada rate now?
As of October 28, 2026, the overnight rate is 2.5%.
Will my mortgage payment go up?
If you have a variable-rate mortgage or HELOC, yes — you will likely see a small increase. If you have a fixed-rate mortgage, your payment stays the same until your term ends.
Should I switch from variable to fixed?
It depends on your current rate, the penalty for breaking your mortgage, and where fixed rates are today. This is worth discussing with your mortgage broker before making a move.
Will rates keep going up?
Possibly. The Bank has not committed to more increases, but has not ruled them out. The next decision is December 9, 2026.
When is the next Bank of Canada announcement?
December 9, 2026.
Have questions about how this affects your mortgage? Reach out to book a no-obligation mortgage review — we are happy to walk you through your options.
This post is for general information purposes only and does not constitute financial or mortgage advice. Always speak with a licensed mortgage professional about your specific situation.
Lori LaLonde
For most Canadians, the down payment is the biggest hurdle to homeownership. A down payment is the initial amount you contribute toward your property purchase, while the lender covers the rest through a mortgage. By law, Canadian lenders can only finance up to 95% of a property’s value, which means you’ll need at least 5% down to qualify. If you’re putting down less than 20%, your mortgage must be insured through one of Canada’s three default insurance providers— CMHC, Sagen (formerly Genworth), or Canada Guaranty . This insurance comes at a cost, but it can be rolled into your mortgage amount. The less you put down, the higher the premium. Since saving a down payment can feel overwhelming, it helps to know the different sources you can draw from. Here are the most common options available to Canadian homebuyers: 1. Savings & Personal Resources The most straightforward source is your own savings. Lenders will ask to see a 90-day history of the funds in your account. Any large deposits outside of regular payroll must be explained with documentation—such as the sale of a vehicle or a transfer from an investment account. This requirement isn’t just red tape; it’s part of Canada’s anti-money laundering rules. 2. Proceeds from the Sale of a Property If you’ve recently sold another home, you can use the proceeds as a down payment on your new purchase. Proof of the sale—such as the final statement of adjustments from your lawyer—will be required. 3. RRSP Home Buyers’ Plan (HBP) First-time buyers can withdraw up to $35,000 each (or $70,000 as a couple) from their RRSPs to put toward a down payment under the federal Home Buyers’ Plan . The funds are withdrawn tax-free, but they must be repaid over a 15-year period. This is a popular option for buyers who have been steadily contributing to their retirement savings. 4. Gifted Down Payment With today’s housing prices, many buyers turn to family for help. A parent or immediate family member can provide a gift that makes up part—or even all—of the required down payment. The lender will require a signed gift letter confirming that the money is a true gift (with no repayment expected) and proof that the funds have been deposited into your account. 5. Borrowed Down Payment In some cases, you may be able to borrow your down payment. This option is usually available only if you have strong credit and sufficient income. The payments on the borrowed funds are factored into your debt service ratios, so affordability is key. Lenders typically use 3% of the outstanding balance when calculating the additional payment. The Bottom Line A down payment doesn’t have to come from just one source—it can be a combination of savings, gifted funds, RRSPs, or other resources. What matters most is being able to show where the money came from and that it meets lender requirements. If you’d like to explore your options or learn how much you might qualify for, it’s never too early to start the conversation. Connect with us today—we’d be happy to help you create a plan and take the first steps toward homeownership.
Buying a home is one of the biggest financial commitments you’ll ever make. That’s why lenders want to be sure you can handle your mortgage payments—not just today, but also if interest rates rise in the future. This is where the mortgage stress test comes in. Many Canadians hear the term but aren’t entirely sure what it means or how it affects them. Let’s break it down in plain language. What Is the Mortgage Stress Test? The stress test is a rule introduced by the federal government that requires all mortgage applicants to qualify at a higher rate than the one they’ll actually pay. Currently, you must qualify at the greater of your contract rate + 2% or the benchmark qualifying rate (set by the Office of the Superintendent of Financial Institutions). For example: If your lender offers you a 5-year fixed mortgage at 5.25%, you must show you could still afford the payments at 7.25% . Even if rates don’t rise that high, the stress test ensures you won’t be overextended if they do. Why Does It Matter? The stress test protects both borrowers and lenders by: Preventing over-borrowing : It ensures you don’t take on more debt than you can realistically handle. Preparing for rate hikes : With interest rates fluctuating, it’s a safeguard against sudden increases. Strengthening financial stability : It lowers the risk of defaults, protecting the housing market as a whole. While it can sometimes feel like a barrier—reducing the amount you qualify for—it’s ultimately designed to keep you from becoming “house poor.” How Does It Impact Buyers? The stress test can significantly affect your homebuying budget. For example, without it, you might qualify for a $600,000 mortgage, but with the stress test applied, you may only qualify for $500,000. That doesn’t mean your dream of homeownership is out of reach—it just means you may need to adjust expectations or explore other strategies, such as: Increasing your down payment Paying down existing debts Considering alternative lenders who may have different qualification standards Why Work With a Mortgage Professional? Every lender applies the stress test, but not every lender views your application the same way. An independent mortgage professional can: Shop multiple lenders to find the best fit Run affordability scenarios at different rates Help you understand how much house you can truly afford—without stretching your finances too thin The Bottom Line The mortgage stress test isn’t meant to stop you from buying a home—it’s there to protect you from financial strain down the road. By understanding how it works and planning ahead, you can make smarter choices and buy with confidence. If you’re thinking about purchasing a home, refinancing, or simply want to know how the stress test affects your options, connect with us today. We’ll help you stress-test your budget and find the mortgage solution that works best for you.
