Variable rates on new mortgages could rise faster than the Bank of Canada’s rate. Here’s why

The cost of variable-rate mortgages rose in line withthe Bank of Canada’s rate hike this week, butvariable-rate increases could outpace central bank hikes in the future for new loans and renewals.

The lowest advertised rate for a five-year variable mortgage on Ratehub.ca had climbed to 3.66 per cent as of Thursday afternoon from 3.41 per cent last week. The increase was the same as the Bank of Canada’s 25-basis-point hike on Wednesday. (There are 100 basis points in a single percentage point.)

However, Victor Tran, an Ontario-based mortgage broker, said advertised variable rates could climb at a faster pace than the Bank of Canada’s headline interest rate in coming months, when the central bank is expected to roll out a few more hikes. That’s because lenders tend to reduce the discount they offer on their prime rate as rates increase. (A bank’s prime rate is their baseline annual interest rate. Variable mortgages tend to be discounted from a bank’s prime rate.)

The last time this happened was in 2022, when both fixed rates and variable rates were climbing rapidly. Lenders started adjusting their variable rate discounts to reduce the gap with their fixed rates.

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A similar scenario could play out in the coming months. Fixed rates have increased by a large margin throughout 2026, and variable rates are expected to rise alongside the BoC headline rate in early 2027.

“Typically what we’ve seen in the past is the discount declining when rates are increasing,” said Mr. Tran.

Ratehub.ca shows the best discounts from a bank’s prime rate are roughly one percentage point for a five-year variable mortgage at 3.66 per cent. The rate is roughly 80 basis points cheaper than a five-year fixed mortgage.

The discount a lender offers a borrower can vary widely based on the mortgage balance, whether the loanis insured and whether it’s fora primary residence or a rental property, among other factors.

Mortgage rates are sourced by Ratehub.ca. For a comprehensive list of today’s mortgage rates for each term/type, visit ratehub.ca/best-mortgage-rates.

Ratehub.ca is a mortgage-rate comparison marketplace and mortgage brokerage. It helps millions of Canadians compare and obtain the best mortgage rates, credit cards, insurance, deposits and loan products.

Rates shown are the lowest available for each term/type and category (insured versus uninsured) as of market close on Thursday.