By Leanne Mollica
Mortgage Broker | Mortgage Architects – Team Borle
Founder, My Mortgage Strategy
Serving Salmon Arm, the Shuswap, and British Columbia
If you follow mortgage rates, your feed is probably flooded with rate-announcement posts every time the Bank of Canada makes a decision.
But what actually goes into that decision?
And why does it matter so much to homeowners and buyers?
Let’s break it down in the simplest way possible.
Think of the Economy Like a Car
The Bank of Canada’s job is to keep the Canadian economy moving smoothly —
not speeding out of control, and not stalling out.
When the Bank adjusts interest rates, it’s basically deciding whether to:
- Tap the brakes
- Press the gas
- Or keep cruising at the same speed
When Rates Typically Go UP
If the economy is moving too fast, prices tend to rise quickly.
That’s called inflation.
Inflation shows up in real life as:
- Higher grocery bills 🛒
- Higher gas prices ⛽
- Rising rent and housing costs 🏠
When inflation stays too high for too long, the Bank of Canada will typically raise interest rates to slow things down.
Higher rates make borrowing more expensive, which encourages people and businesses to spend a little less — helping cool inflation over time.
When Rates Typically Go DOWN
If the economy starts moving too slowly, people spend less, businesses slow hiring, and growth can stall.
Signs of this can include:
- Slower job growth
- Reduced consumer spending
- Less business investment
In these situations, the Bank of Canada may typically lower interest rates to encourage borrowing and spending, helping the economy pick up momentum.
When Rates Stay the SAME
Sometimes, things are actually… fine.
If inflation is under control and the economy is growing at a sustainable pace, the Bank of Canada may leave rates unchanged.
This doesn’t mean nothing is happening — it usually means they’re waiting to see how earlier rate changes continue to work their way through the system.
What the Bank of Canada Is Watching Closely
Inflation
Inflation measures how quickly prices are rising across the economy.
Keeping inflation stable is the Bank of Canada’s primary mandate.
If inflation remains elevated, there’s pressure to keep rates higher.
If inflation cools, it can create room for rates to eventually ease.
GDP
GDP (Gross Domestic Product) is a measure of how much the country is producing, buying, and selling.
- Strong GDP = lots of spending and activity
- Slowing GDP = people and businesses tightening up
Too much spending can fuel inflation.
Too little spending can slow the economy too much.
The goal is balance.
Where Mortgages Fit Into All of This
This is the part many homeowners don’t realize.
Millions of Canadians are renewing mortgages at higher rates than they had before.
Higher mortgage payments often mean:
- Less disposable income
- Fewer renovations, trips, and big purchases
- More cautious household spending
That natural slowdown in spending can help cool inflation over time, which is one of the factors the Bank of Canada considers when deciding whether rates need to stay high or can eventually come down.
The Bank of Canada does not set your mortgage rate directly —
but its decisions influence:
- Variable mortgage rates
- How lenders price fixed rates based on future expectations
The Big Picture
Every rate decision is a balancing act.
The Bank of Canada is constantly trying to manage:
- Prices not rising too fast
- The economy not slowing too much
That’s why rate decisions often feel slow, cautious, and sometimes frustrating — they’re designed to work gradually, not overnight.
What This Means for You as a Homeowner or Buyer
Rate announcements make headlines — but they don’t affect everyone the same way.
How rate changes impact you depends on:
- Your mortgage type (fixed vs variable)
- Your renewal timeline
- Your long-term plans and cash flow
If you have a renewal coming up, this is where strategy matters more than headlines.
Understanding why rates move can help you make calmer, more informed mortgage decisions — instead of reacting to every announcement.