How Are Mortgage Rates in Canada Determined?

How Are Mortgage Rates in Canada Determined?
Weekly Q&A with Mark Chala


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There are two main types of interest rates attached to mortgages, variable and fixed rates.

When it comes to variable interest, there is a path to get to the final number. Your mortgage rate, the homeowner, is determined by the key interest rate of commercial banks. That number is determined by the Bank of Canada’s key interest rate.

So, an individual’s mortgage is increased or decreased when the Bank of Canada’s key interest rate fluctuates. The Bank of Canada’s rates will fluctuate in an effort to control inflation and keep the country’s supply and demand in check.

As for fixed rate mortgages, this number is dictated by the yield on Canadian government bonds of corresponding maturity. The rate still moves with the economy as with variable mortgages, but a fixed rate allows a buyer to lock in as investors direct their money into government bonds instead of financial markets.

From Larry McDonald at

“When investors are bullish about the markets, government bond yields would increase to make them more attractive. Under this scenario, fixed mortgage rates would increase.”

More questions about mortgage rates in Canada? A One Stop mortgage professional would love to talk to you.