When the Bank of Canada changes its policy interest rate, it makes headlines, but most people aren’t sure how, or how quickly, it affects their own mortgage. The short answer: it depends on whether your rate is fixed or variable. Variable-rate borrowers feel it within days. Fixed-rate borrowers mostly feel it at renewal, and even then through a different channel.
This guide traces the path from a Bank of Canada announcement to your monthly payment, with real numbers.
Step 1: the policy rate
The Bank of Canada sets a target for the overnight rate, the rate at which major banks lend to each other for one day. It raises the rate to cool inflation and lowers it to support the economy. Decisions are announced on eight scheduled dates a year; the remaining 2026 dates are October 28 and December 9.
Bank of Canada policy rate and prime rate, 2022–2026
Step 2: prime rate follows
Each lender sets its own prime rate, but in practice the big banks move prime in lockstep with the Bank of Canada, usually effective the next day. Prime has typically sat 2.20 percentage points above the policy rate, which is why prime is 4.45% today.
Step 3: variable mortgages and HELOCs adjust
Variable-rate mortgages and home equity lines of credit are priced as prime plus or minus a set amount. If your mortgage is prime minus 0.50%, your rate moves exactly as prime moves. What happens next depends on your mortgage type:
Two kinds of variable mortgage
Adjustable-rate (ARM)
- Payment changes with prime
- You feel a change within one payment cycle
- Amortization stays on track
Fixed-payment variable (VRM)
- Payment stays the same
- More or less of each payment goes to interest
- Can hit a trigger rate if rates rise a lot
What a 0.25% move means on a $500,000 variable mortgage
| Rate | Monthly payment (25-year amortization) | Change |
|---|---|---|
| 3.70% | $2,549 | −$68 |
| 3.95% | $2,617 | — |
| 4.20% | $2,685 | +$68 |
Fixed rates follow a different path
Fixed mortgage rates aren’t set by the Bank of Canada directly. Lenders price them mostly off Government of Canada bond yields, especially the five-year yield, plus a margin. Bond yields react to expectations about future inflation and future Bank of Canada decisions, so fixed rates often move before the Bank acts, and sometimes in the opposite direction.
That’s why fixed rates can rise even when the Bank is cutting, as can happen when bond yields climb on inflation worries or global market moves. If you have a fixed rate, today’s Bank of Canada decision doesn’t change your payment; it affects the rates you’ll be offered at renewal.
How a rate change reaches your payment
- Announcement day
The Bank of Canada decides
The new policy rate takes effect that day, announced at 9:45 a.m. ET.
- Usually next day
Banks adjust prime
Most major lenders announce a matching change to prime.
- Next payment
Variable borrowers feel it
Adjustable-rate payments change; fixed-payment variable mortgages shift the interest split.
- At renewal
Fixed borrowers feel it
New fixed rates reflect bond yields and rate expectations at that time.
What to do when rates change
- Variable, rates rising: check whether your payment is still reducing principal. Consider increasing payments voluntarily or locking in if the extra uncertainty isn’t worth it to you.
- Variable, rates falling: consider keeping your payment where it was. The extra goes to principal and shortens your amortization.
- Fixed: nothing changes now, but track rates as your renewal approaches and shop about four months early.
- HELOC: your interest cost changes immediately, so rising rates make paying down the balance more valuable.
Examples use illustrative rates and Canadian semi-annual compounding, and are rounded. They are not rate quotes or advice. Last reviewed September 2026.