Bank of Canada Announcement: Impact on Your Mortgage

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Eight times per year, the Bank of Canada publishes its decisions regarding the policy interest rate, also known as the overnight rate target. These announcements have a direct and immédiate impact on holders of variable-rate and adjustable-rate mortgages in Quebec and across Canada. The policy rate influences the prime rate of Canadian financial institutions, which serves as the basis for calculating variable mortgage rates. When the Bank of Canada raises its policy rate by 0.25%, the prime rate generally increases by the same amount, resulting in an immédiate increase in the interest rate on variable mortgages. For an adjustable-rate mortgage, the monthly payment increases directly. For a variable-rate mortgage with fixed payments, the interest portion grows and the principal portion shrinks, potentially triggering a trigger rate if interest exceeds the payment amount. Fixed-rate mortgages are not directly affected by policy rate changes, as they follow Government of Canada bond yields instead. However, policy rate movements indirectly influence the bond market and therefore future fixed rates. AMF-certified mortgage brokers must understand these mechanisms to properly advise their clients.

The Bank of Canada Announcement and Your Mortgage

Eight times per year, the Bank of Canada renders its decision on the policy interest rate (overnight rate target). This announcement is one of the most closely watched financial events in the country, as it directly impacts millions of mortgage holders. For Quebec borrowers, understanding exactly how this decision affects their mortgage payment is essential for making informed decisions.

The Mechanism: From the Policy Rate to Your Mortgage Rate

The Bank of Canada sets the policy rate to influence the cost of money in the Canadian economy. Financial institutions (major banks, Desjardins, credit unions) then adjust their prime rate accordingly. Historically, the prime rate sits approximately 2.20% above the policy rate. Your variable mortgage rate is calculated as your lender's prime rate, adjusted by a spread negotiated when you signed your mortgage contract (for example, prime minus 0.70% or prime plus 0.50%).

Policy rate (overnight rate target): The interest rate at which major financial institutions lend funds to one another overnight. It is the Bank of Canada's primary monetary policy tool for controlling inflation and stabilizing the economy.

Impact by Mortgage Type

Variable rate with adjustable payments: Your monthly payment changes with each policy rate adjustment. A 0.25% increase translates to approximately $13 more per $100,000 of mortgage balance on a 25-year amortization.
Variable rate with fixed payments: Your payment stays the same, but the split between principal and interest changes. During rate increases, a larger portion goes to interest and less to principal repayment. If the rate hits the trigger point, your lender will require an adjustment.
Fixed-rate mortgage: No immédiate impact. Your rate and payment are guaranteed for the duration of your term (typically 5 years). The effect will only be felt at renewal, and fixed rates primarily follow Government of Canada bonds, not the policy rate directly.
Home equity line of credit (HELOC): The interest rate is directly tied to the prime rate and adjusts immediately after any policy rate change.

What You Can Do After a Rate Increase Announcement

Assess the impact on your budget: Calculate the actual increase to your payment or the decrease in your principal portion. Your lender should provide a notice of modification within days of the rate change.
Consider converting to a fixed rate: Most variable-rate mortgages allow conversion to a fixed rate without penalty, at the fixed rate in effect at the time of conversion. This option eliminates the risk of future increases, but you will not benefit if rates subsequently decline.
Increase your payments voluntarily: If your budget allows, increasing your payments during rate hikes maintains the same pace of principal repayment. Most lenders allow increases of up to 10% to 20% of the original payment without penalty.
Consult your AMF-certified mortgage broker: An AMF-certified broker can analyze your overall situation, compare the costs of conversion versus maintaining the variable rate, and recommend the optimal strategy based on your financial goals and risk tolerance.

Frequently Asked Questions

When does the Bank of Canada announce policy rate decisions?

The Bank of Canada makes eight rate announcements per year on a pre-set schedule. The dates are published at the beginning of the year on the Bank of Canada website. Announcements are typically made on Wednesdays at 10:00 a.m. Eastern Time.

Does my mortgage payment change immediately after the announcement?

It depends on your mortgage type. If you have a variable rate with adjustable payments, your payment will typically change within days of the announcement. If you have a variable rate with fixed payments, your payment stays the same but the split between principal and interest changes. If you have a fixed rate, nothing changes until your renewal.

What is the difference between the policy rate and the prime rate?

The policy rate is set by the Bank of Canada and serves as the benchmark for the banking system. The prime rate is set individually by each financial institution, generally 2.20% above the policy rate. Your variable mortgage rate is expressed as prime plus or minus a discount (e.g., prime minus 0.50%).

Does a policy rate increase affect my fixed-rate mortgage?

Not directly. Your fixed rate is locked in for the duration of your term. However, if the policy rate rises, future fixed rates may be higher at your renewal. Fixed rates primarily follow the 5-year Government of Canada bond yield, not the policy rate directly.

What is the trigger rate?

The trigger rate is the threshold at which the interest on your variable-rate mortgage with fixed payments exceeds your monthly payment. At that point, your payment no longer covers any principal and your debt may actually increase. Your lender will contact you to adjust your payment if this situation arises.

How can an AMF-certified mortgage broker help when rates rise?

An AMF-certified broker can analyze the precise impact of a rate increase on your payment, evaluate whether converting to a fixed rate is advantageous, compare offers from multiple lenders, and advise you on the best strategy based on your financial situation and medium-term goals.