Step 2 — Mortgage Rates Follow

Banks set mortgage rates

2–6 weeks

Commercial banks take the BoC policy rate and add their margin. The 5-year fixed rate also bakes in bond market expectations about where rates are headed. Your monthly payment is set here.

There are two flavours of mortgage rate that matter. The variable rate moves almost in lockstep with the BoC — when the Bank cuts, your payment drops within weeks. The 5-year fixed rate is trickier: it follows the bond market, which prices in where traders think rates will be years from now.

Watch how the blue policy rate line and the green fixed rate line move together over time, but the fixed rate often leads — it starts falling before the BoC actually cuts, because bond traders are forward-looking.

Policy Rate vs Mortgage Rates

Updates daily

Sep 2021 – Apr 2026 · 5yr· Bank of Canada

Common Misconception

Variable rates respond to BoC changes within weeks. Fixed rates can actually move in the opposite direction if bond markets disagree with the Bank. In late 2023, the BoC held rates steady while 5-year fixed rates drifted lower — the bond market was betting on future cuts before the Bank made them.

5yr Fixed Rate

4.79%

Bank of Canada

5yr Variable Rate

0.70%

Bank of Canada

Step 3 — Buyers React

Mortgage rates drive buyer demand

1–3 months

When rates drop, buyers can afford more house for the same monthly payment. When rates rise, the opposite happens — budgets shrink, demand cools, and some buyers are priced out entirely.

Here is the core affordability equation that every buyer faces, whether they know it or not:

Monthly income ÷ Mortgage rate = Maximum purchase price

Your income does not change when the BoC announces a rate cut. But the amount a bank will lend you absolutely does. A family earning $120K/year might qualify for a $480K mortgage at 6%, but $530K at 5%. Same family, same paycheque — $50K more purchasing power from a single percentage point.

Multiply that across thousands of buyers in Edmonton and Calgary, and you get a wave of demand that hits the market all at once. That is what drives bidding wars when rates drop and what causes listings to sit for months when rates spike.

Why This Matters

A rough rule of thumb: every 1% drop in mortgage rates gives buyers about 10% more purchasing power. That means a move from 6% to 5% does not just add a little room — it can push someone from a condo budget into a townhouse budget. Small rate moves, big market effects.