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"Does the Bank of Canada Rate Announcement Affect My Fixed Interest Rate?"
- Ashleigh Holtman
- Aug 2, 2024
- 3 min read
Updated: Jun 12
When it comes to choosing a mortgage, one of the most important questions is whether the Bank of Canada rate announcement affects your fixed interest rate. The short answer is no, not directly. However, there is still an indirect relationship that can impact what you are offered when you are buying, refinancing, or renewing your mortgage.
Understanding how fixed and variable rates are set will help you make a more informed decision and better understand what drives changes in the mortgage market.
Fixed mortgage rates and the Canadian bond market
Fixed mortgage rates are set for a specific term, which means your interest rate and monthly payment stay the same throughout that period. This predictability is why many borrowers prefer fixed rates, especially when budgeting matters.
How fixed mortgage rates are determined
Fixed rates in Canada are primarily influenced by the Canadian bond market, specifically Government of Canada bond yields.
When bond yields move, fixed mortgage rates tend to follow in the same direction.
When bond yields rise, fixed mortgage rates usually increase
When bond yields fall, fixed mortgage rates typically decrease
These bond yields are influenced by broader economic conditions such as inflation expectations, economic growth, and global financial sentiment. Investors demand higher yields when they expect inflation or uncertainty, which then pushes fixed mortgage pricing higher.
If you want a deeper breakdown of how these two options compare, you can read more here: exploring fixed vs variable rates
Variable mortgage rates and Bank of Canada rate announcements
Variable mortgage rates are where the Bank of Canada has a direct impact.
This is an important distinction when comparing fixed versus variable mortgage options.
Variable rates are tied to your lender’s prime rate, which is influenced by the Bank of Canada’s overnight lending rate. When the Bank of Canada announces a rate change, it directly affects variable rate mortgages.
How variable rates are determined
The process works in a chain reaction:
The Bank of Canada sets the overnight rate
Lenders adjust their prime rate based on that overnight rate
Variable mortgage rates move up or down based on prime rate changes
If the Bank of Canada raises its rate, variable mortgage rates typically increase. If it lowers the rate, variable mortgage rates usually decrease.
These decisions are based on economic indicators like inflation, employment levels, and overall economic growth.
So does the Bank of Canada affect fixed mortgage rates?
This is where the confusion usually happens.
The Bank of Canada does not directly set fixed mortgage rates, but its decisions can still influence them indirectly.
Here is how that connection works:
When the Bank of Canada changes interest rates, it affects inflation expectations and economic outlook. That shift influences bond investors, which then impacts bond yields. Since fixed mortgage rates are tied to bond yields, they can move even without a direct change from the Bank of Canada.
So while there is no direct link, there is a chain reaction that can still influence fixed rates over time.
Choosing between fixed and variable interest rates
Choosing between fixed and variable comes down to your comfort with risk, your financial situation, and how you feel about future rate movements.
A fixed rate offers stability and predictable payments, which can make budgeting easier. A variable rate can offer savings over time, but it comes with the possibility of fluctuations depending on Bank of Canada decisions.
If you are weighing your options, this breakdown may help: how broker helps when interest rates are rising
For a broader perspective on renewals and rate decisions, you can also read: to renew or not renew that is the question
Final thoughts on rate announcements and your mortgage
The Bank of Canada rate announcement has a direct impact on variable mortgage rates, but only an indirect influence on fixed mortgage rates through the bond market. This is why you can sometimes see fixed rates move even when the Bank of Canada has not made a change.
Understanding this difference helps you make better decisions when you are buying a home, refinancing, or approaching a renewal.
If you are unsure which direction is right for you, or how current rate conditions impact your specific situation, working through the numbers with a mortgage professional can make a meaningful difference in your outcome and your long-term costs.
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