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The Bank of Canada announced a 25 basis point increase, its 8th consecutive rate hike, pushing the key interest rate from 4.25% to 4.50% on Wednesday, January 25th, 2023. This increase was widely predicted by economists ahead of the official announcement. At 4.50%, this is the highest the interest rate has been since 2008.

What does this mean for mortgage rates in Canada?

According to our January Mortgage Rate OutlookAli Hussin, Head of Mortgage Advisory at Perch, anticipates fixed mortgage rates will stagnate and variable mortgage rates to increase slightly.

With the Bank of Canada front loading rate hikes, the latest 5-year variable mortgage rate projections have changed. Back in September, the short-term variable rate (2024-2025) was expected to hover around 4%, whereas now it’s expected to be closer to 3.50%. This is much lower than originally forecasted, which should be welcome news for many homeowners.

In the chart below, you can see how the 5-year variable rate forecast has changed over the past 5 months.

Will this be the final rate hike from the Bank of Canada?

If you follow what the leading economists are saying, the overall consensus appears to be 'Yes.' But why?

With inflation continuing to decelerate, a lot of the recent rate hikes have yet to filter their way fully into the market. We should see these all play out in 2023, as inflation trends back towards the target of 2%. Inflation is just one of the many factors the Bank of Canada focuses on, and we believe the potential further impact to housing and employment will motivate them to err on the side of caution as it relates to overdoing rate hikes.

How does Perch calculate forecasted variable mortgage rates?

We calculate forecasted variable mortgage rates by analyzing expected movements in the Bank of Canada overnight rate (which directly impact bank prime rates). Perch doesn't take a specific position on overnight rate movements, we simply aggregate various financial indicators to determine what the market anticipates will happen.

How does the Bank of Canada rate hike impact the real estate market?

We believe that home prices are already nearing their bottom for two main reasons:

1. Mortgage rates have already started to come down and will continue to do so, which should motivate buyers to re-enter the market at lower prices.

2. The other factors that drove higher house prices prior to the rise in rates are still there or have worsened. Record levels of immigration and an accumulation of buyers that are waiting to see how the market plays out will all hit the market at the same time, driving up demand. Supply issues are still very much present as well.

Because of this, we anticipate a quick recovery for the Canadian real estate market in late Q2.

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I'm thinking about buying in the near future. Any mortgage advice?

Whether you're a first-time home buyer or experienced real estate investor, affordability is always a key factor. For anyone buying that doesn't qualify for what they need, consider looking at alternative lending options as it relates to the potential price appreciation.

For example, someone who could qualify with an alternative lender today may be able to buy a home that is 10-30% more expensive, but pay a 1% premium on their interest rate. Our Rent vs Buy Calculator helps quantify part of this equation, but you should speak with an experienced mortgage advisor to review your options.

I'm a homeowner due for a mortgage renewal this year. What should I do?

If you're reading this post, you're already doing the right thing by keeping on top of our mortgage rate forecasts. Depending on when you're due to renew, we recommend looking into shorter mortgage terms until rates begin to decrease in the second half of 2023.

Things you should ask yourself:

  • Do I continue with my current mortgage lender?
  • Should I consider an adjustable rate mortgage?
  • What other real estate plans do I have within the next few years?

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What are today’s best mortgage rates?

The best 5-year fixed mortgage rate is 4.40%. The best 5-year variable mortgage rate is 5.31%. Additional mortgage rates and terms can be found here.

When is the next Bank of Canada rate announcement?

The next Bank of Canada interest rate announcement is Wednesday, March 8th, 2023 at 10:00 AM. After that, the next announcement is set for Wednesday, April 12th, 2023. 

What is the Bank of Canada rate announcement schedule for 2023?

The Bank of Canada released its schedule for interest rate announcements in July 2022. Here is the 2023 Bank of Canada rate announcement schedule in its entirety:

  • Wednesday, January 25, 2023
  • Wednesday, March 8, 2023
  • Wednesday, April 12, 2023
  • Wednesday, June 7, 2023
  • Wednesday, July 12, 2023
  • Wednesday, September 6, 2023
  • Wednesday, October 25, 2023
  • Wednesday, December 6, 2023

Typically, the Bank of Canada releases its interest rate announcement schedule for the following year in the summer. We can expect to see the 2024 rate announcement schedule announced in July 2023.