Bank of Canada Raises Its Rate to 2.5%: What It Means for Toronto Buyers, Sellers and Renewals

The short answer: On October 28, 2026, the Bank of Canada raised its target for the overnight rate by 25 basis points, from 2.25% to 2.5%. It is the Bank's first increase since July 2023. The move mainly affects variable-rate mortgages and lines of credit tied to prime. Fixed rates follow bond yields more than the policy rate, so they may not move by the same amount. For Toronto buyers, sellers and owners with a renewal coming up, the main thing to do is recheck your numbers, not panic.

What did the Bank of Canada announce on October 28?

According to the Bank of Canada's press release, the overnight rate target is now 2.5%, with the Bank Rate at 2.75% and the deposit rate at 2.45%. The policy rate had been 2.25% since October 2025 and was held there at every decision so far in 2026.

The Bank said it raised the rate "to reduce the risk that continuing high energy prices spread broadly to the prices of other goods and services." It also said there "could be a need to increase the policy rate further," but that Governing Council "agreed to proceed carefully" given the uncertainty. The next scheduled decision is December 9, 2026.

Why did the Bank raise rates now?

The short version is inflation driven by energy. Statistics Canada's September Consumer Price Index, released October 19, showed prices up 3.1% from a year earlier, after 3.0% in August. Gasoline prices were up 27.8% year over year. Excluding gasoline, CPI was up 2.2%.

In its release, the Bank said CPI inflation has been around 3% since April and is expected to rise to about 3.5% by the end of the year. It now expects inflation to average 3% in 2027, a full percentage point above its July projection, before coming back to 2% in the middle of 2028.

At the same time, growth has been better than expected. The Bank noted GDP growth of 3.3% in the second quarter and indicators pointing to about 2% in the third quarter.

What does this mean for variable-rate mortgages?

Variable-rate mortgages and home equity lines of credit are usually priced off a lender's prime rate. The big banks' prime rate was 4.45% before this decision. Lenders usually move prime by the same amount as the policy rate, which would put it at 4.70%, but check your own lender's announcement for the actual change and the date it takes effect.

As a rough illustration, a 0.25 percentage point increase on a $500,000 balance adds about $1,250 a year in interest. If your variable payment is fixed, more of each payment will go to interest and less to principal. If your payment adjusts, it will go up.

What about fixed mortgage rates?

Fixed rates are mostly driven by Government of Canada bond yields, not the overnight rate directly. The Bank noted that sovereign bond yields in advanced economies have risen since July. We wrote about the earlier jump in fixed rates in Fixed Mortgage Rates Just Jumped: What Toronto Buyers Should Do This Fall. If bond markets had already priced in a hike, fixed rates may change less than variable rates this week. Talk to a mortgage professional about current offers rather than relying on headlines.

Should Toronto buyers wait or move ahead?

No one can reliably time rates, and the Bank itself says the outlook is uncertain. A more useful approach:

• Get a pre-approval with a rate hold, and ask how long the hold lasts.
• Stress-test your budget at a rate higher than today's, so a further increase would not break your plan.
• Compare fixed and variable on total cost and on how much payment change you can handle, not just the starting rate.
• Focus on the right home and building. Rates change over a mortgage term. The home you buy is harder to change.

The Bank also said it expects housing activity "to remain relatively weak." For buyers, a slower market can mean more choice and more room to negotiate on conditions, although every neighbourhood and building is different.

What should sellers keep in mind?

Higher borrowing costs can shrink some buyers' budgets, especially first-time buyers using variable rates. That makes pricing and presentation more important. Homes that are priced in line with recent comparable sales, and shown well, tend to hold buyer attention in a slower market.

What if my mortgage is up for renewal?

Start early. Many lenders will let you lock a renewal rate a few months before maturity. Shop your renewal rather than signing the first offer, and compare terms as well as rates (prepayment privileges, portability and penalties matter). If your condo or home is also a rental, our post on Toronto condo mortgage payments versus average rents covers how carrying costs compare.

Frequently asked questions

What is the Bank of Canada's policy rate now?
2.5%, after a 25 basis point increase announced on October 28, 2026.

When is the next Bank of Canada decision?
December 9, 2026. The next Monetary Policy Report is scheduled for January 27, 2027.

Will my fixed-rate mortgage payment change?
Not during your current term. A fixed payment stays the same until renewal. The rate you get at renewal will depend on market rates at that time.

Does a rate hike mean Toronto home prices will fall?
Not necessarily. Prices depend on supply, demand and local conditions as well as rates. The Bank expects housing to remain relatively weak, but conditions vary a lot by neighbourhood, property type and building.

Talk it through with our team

The Starke Group, led by Brett Starke and powered by RARE Real Estate Inc., helps buyers, sellers and owners in Toronto and the GTA make sense of changes like this one and plan their next move with clear numbers. If you want to talk through how today's decision affects your plans, Connect with The Starke Group.