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Homes for sale in Ajax, Ont., on Sept 7.Fred Lum/The Globe and Mail

The Bank of Canada increased its policy interest rate by 0.75 percentage points on Wednesday and signaled that its aggressive campaign against inflation isn’t over. These rapid and successive interest rate hikes are putting pressure on the real estate market and on homeowners, who will soon pay more interest on their mortgage.

As Canada’s prime rate increases – a benchmark lenders adjust based on movements in the Bank of Canada’s trendsetting overnight rate – so too do mortgage rates. For homebuyers, this means potentially higher monthly payments and increased overall interest on their mortgage. When these changes will come into effect depends on the type of loan a borrower signed up for: fixed or variable.

The calculator below helps you compare how different interest rates affect the cost of your mortgage.

How do higher interest rates affect fixed-rate mortgages?

A fixed-interest rate mortgage typically locks in payments for a set term of two to five years. This means people with fixed-term mortgages won’t see a change in the interest they pay on their mortgage until they renew their mortgage at the end of their current term.

If their mortgage term comes to an end while Canada’s prime rate is higher than when they last signed a mortgage term, they could enter a new term at a potentially higher rate.

How do higher interest rates affect variable-rate mortgages?

Some variable-rate mortgages keep payments steady, up to a certain threshold, known as the trigger rate. With rapidly increasing interest rates, some borrowers with variable-rate mortgages are reaching their trigger rate, which means they’ll see their monthly payments go up along with the overall interest they pay on their mortgage principal.

Homeowners who remain below their trigger rate will maintain steady monthly payments, but a higher share of each payment will go toward interest.


The mortgage principal is the amount you’re borrowing from the bank.

The amortization period is the total length of the loan, which is often but not always 25 years.

With files from Mike Rendell. Interactive from Carys Mills.