The Mortgage Conversation: What I’m Telling My Clients About Interest Rates
If there is one question I have been asked more than any other over the past year, it is this:
“Where do you think interest rates are going?”
My honest answer is probably not as satisfying as people would like.
I don't know.
And I say that as someone who has spent years working in the mortgage business, watching rate cycles, talking to lenders every day and helping Canadians navigate everything from their first mortgage to renewals, refinances and investment properties.
I am not an economist, and I certainly don't pretend to know where interest rates will be 12 months from now.
What I can do is watch the numbers, listen to what the economists are saying, understand how the mortgage market is reacting and, perhaps most importantly, look at what I am seeing in the real world with actual borrowers.
And right now, I think homeowners should be prepared for a period where rates may not move nearly as dramatically as they did a few years ago but they also may not give us the steady decline that some borrowers have been hoping for.
So, where are rates headed?
As of September 2026, the Bank of Canada's overnight rate is 2.25 per cent. The Bank has held that rate since late 2025.
The interesting part is what happens next.
Recent forecasts are far from unanimous. Some major financial institutions expect the Bank to remain at 2.25 per cent for an extended period, while others are forecasting gradual increases during 2027. Depending on the institution and the timing of its forecast, some projections have the overnight rate reaching somewhere around 2.50 to 3.25 per cent over the course of 2027.
There are good arguments on both sides.
The Bank of Canada has been dealing with an economy that has shown weakness, while inflation has generally been moving toward its target. At the same time, there are renewed inflation risks from energy prices and ongoing trade uncertainty.
That leaves us in an interesting position.
I wouldn't build a household budget around the assumption that rates are going significantly lower.
But I also wouldn't panic and assume we are heading back to the five, six or seven per cent mortgage rates that Canadians experienced during the last major rate shock.
My expectation (and this is simply my view, not an economic forecast) is that the next year could be more about stability and modest movements than dramatic rate changes. There is a reasonable possibility of some increases, particularly if inflation remains stubborn, but there are also economic conditions that could keep the Bank cautious.
In other words, I think borrowers should plan for the possibility of higher rates without making the mistake of assuming they are inevitable.
This is where variable mortgages get interesting
I've had a lot of conversations with clients who chose—or needed to choose—a variable-rate mortgage.
There is an important distinction here.
Some borrowers choose variable because they believe rates will fall.
Others choose variable because it is the only way the numbers work.
Those are very different situations.
The second group is the one I worry about more.
I've had clients who qualify for a purchase at a particular price only because the variable mortgage gives them a payment that fits within their monthly budget. There isn't a lot of room between what they make, what the lender will approve and what the household actually needs to spend each month.
For those borrowers, a quarter-point increase isn't just an interesting economic headline.
It affects the family budget.
And that's why I don't think the right question after your mortgage closes is simply, “What is the rate today?”
The better question is:
“How much room do I have if the rate goes up?”
If you're in a variable mortgage, give yourself some breathing room
If you have just finalized a variable mortgage and your budget is already tight, I would suggest doing something very simple.
Don't immediately spend the difference between your mortgage payment and your maximum affordable payment.
If your current mortgage payment is $3,000 but you know you could manage $3,300 if you had to, consider pretending the payment is already $3,300.
Put that extra $300 into savings every month.
There are a few advantages to doing this.
First, you build an emergency fund.
Second, if rates increase, you already have some room in your budget.
Third, if rates remain where they are, you have accumulated money that can potentially be used toward your mortgage principal, an upcoming expense or another financial goal.
It also changes the psychology of the situation.
Instead of waiting for a rate increase and then scrambling to find another $200 or $300 a month, you've already built that money into your household routine.
Don't wait until the renewal date to have the conversation
Another mistake I see is borrowers waiting until three weeks before their mortgage renewal to start thinking about what they want to do.
That's too late.
If you have a variable mortgage, I suggest reviewing your situation periodically, particularly if your household income, expenses or debt have changed.
And if rates start moving higher, don't immediately assume the answer is to break your mortgage and lock into a fixed rate.
There are costs and trade-offs involved.
Depending on the mortgage, there may be penalties to break it. Fixed rates can also move independently of the Bank of Canada's overnight rate because they are influenced by the bond market.
Sometimes the best move is to stay variable.
Sometimes converting to a fixed mortgage makes sense.
Sometimes increasing your payment is the better answer.
Sometimes the right answer is simply to do nothing and wait.
That is where having an actual conversation with your mortgage professional can be valuable.
Watch your payment—not just the interest rate
This is particularly important for people with variable mortgages.
Depending on the mortgage product, a change in the interest rate can affect the payment differently.
Some variable mortgages have payments that change as the lender's prime rate changes. Others may keep the payment relatively stable for a period of time, with more of the payment going toward interest and less toward principal.
Borrowers need to understand which type they have.
I would encourage every variable-rate borrower to know three numbers:
- Your current payment.
- Your current interest rate.
- The rate at which your mortgage payment or amortization becomes a problem.
That third number is the one that tends to get overlooked.
What if rates start increasing?
If we start seeing a series of rate increases, my advice would be to avoid making decisions based on fear.
A quarter-point increase is worth paying attention to. It isn't necessarily a reason to panic.
If rates rise, I'd suggest doing the following:
- Review your household budget and identify discretionary spending that can be reduced temporarily.
- Keep building or maintaining an emergency fund.
- Consider increasing your mortgage payment voluntarily if your budget allows.
- Make lump-sum payments when you have the ability and your mortgage allows them.
- Talk to your mortgage broker before breaking a mortgage or locking into another product.
- Find out what fixed-rate options are actually available rather than assuming today's advertised rate is the only option.
- Revisit your mortgage if your financial circumstances have changed significantly.
- Don't make a long-term decision based solely on what you think the Bank of Canada will do at its next meeting.
The last point is important.
Nobody knows exactly what the Bank of Canada is going to do next.
I've been around long enough to see plenty of confident predictions turn out to be wrong.
If you are reading this and thinking, “That's great advice, but I barely qualified for my mortgage in the first place,” then I would approach things a little differently.
Your first priority should be cash flow.
Don't take on a mortgage payment that leaves you with nothing left at the end of the month.
And once your mortgage closes, don't immediately assume that because the lender approved you, you have to spend every dollar of your available income.
Give yourself a buffer.
If you can put $200, $300 or $500 a month into a separate savings account, do it.
Call it your “mortgage rate fund.”
If rates rise, that money is there. If rates don't rise, you've created a useful savings account.
And if rates eventually fall, you've still benefited from developing the habit of living below your maximum mortgage payment.
That is much more sustainable than trying to predict the Bank of Canada correctly every six weeks.
The biggest mistake is betting your household on a forecast. The mortgage industry loves forecasts. So do newspapers.
So do economists, investors and, apparently, people like me who spend far too much time talking about interest rates.
But forecasts are forecasts. They change.
The Bank of Canada's own outlook acknowledges significant uncertainty, and recent economic developments including inflation, energy prices and trade conditions can change the interest-rate picture surprisingly quickly.
So rather than asking me, “Do you think rates will be lower next year?” I'd rather have a client ask:
“What happens to me if they're not?” That's a much better mortgage question.
If you can comfortably afford your mortgage at today's rate and have some room in your budget, you're in a much better position to ride out whatever happens next.
If you're stretched to the limit, I'd rather see you address that now than wait for a rate increase to force the conversation.
And if you're considering a variable mortgage because it's the only way the purchase works, that's not necessarily a bad decision but it should be a decision you make with your eyes open.
Know what happens if rates rise by 0.25 per cent.
Know what happens if they rise by 0.50 per cent.
Know what happens if they don't move at all.
And, perhaps most importantly, have a plan for each scenario.
Because after years in the mortgage business, one thing I've learned is that the people who tend to sleep best at night aren't necessarily the ones who picked the perfect mortgage.
They're the ones who gave themselves enough room that they didn't need to.
Note: This column reflects my perspective as a mortgage broker and is intended for general information only. I am not an economist or financial adviser, and interest-rate forecasts are inherently uncertain. Mortgage decisions should be based on an individual's circumstances, financial position and risk tolerance.
