The Bank of Canada is expected to deliver two more hikes through 2027, bringing the Prime Rate to 5.20%. However, global energy prices and mortgage market dynamics may moderate this timeline.
How Many Rate Hikes is the Bank of Canada Expected to Do? (And What It Means for BC Homeowners)
With the Bank of Canada announcing the first rate hike since July 2023, the question on every BC homeowner and prospective buyer’s mind is: How many more of these are coming?
When headline after headline predicts aggressive monetary tightening, it is easy to feel overwhelmed. But as a mortgage broker helping clients navigate this market every single day, I want to cut through the noise. Here is what the economic data is actually telling us, what your neighbors are doing to adapt, and how you can protect your wallet—and your sanity.
The True Rate Forecast: What to Expect in 2026 and 2027
While broader market speculation has priced in up to 90 basis points of tightening over the coming year, recent analysis from the National Bank suggests those fears are slightly excessive.
Instead, a more measured trajectory is expected: the Bank of Canada is forecast to deliver three rate hikes spread over three quarters, ultimately bringing the prime rate to a peak of 5.20% by June 2027.
The primary driver behind this inflation is not a booming domestic economy, but rather global energy costs. We are dealing with reduced global refining capacity and geopolitical tensions involving the U.S., Iran, Russia, Ukraine, and Venezuela. The silver lining? If we see resolutions in these conflicts or increased refining capacity in the next 12 to 24 months, energy costs will drop, pulling inflation down with them and potentially easing the rate-hiking cycle.
What BC Buyers Are Actually Doing: The 1.00% Spread
So, how are everyday buyers handling this environment? I am seeing a massive shift away from the traditional 5-year fixed mortgage. Instead, clients are heavily favoring Variable-rate mortgages and shorter 2- to 3-year fixed terms.
- The Variable Strategy: Right now, variable mortgages are priced roughly 1.00% lower than fixed-rate options. Clients choosing this path are securing immediate savings. They are making a calculated bet that the Bank of Canada will not hike rates further than 1.00% to 1.50%, allowing them to ride out the turbulence while still paying less than if they had locked into a 5-year fixed today.
- The Short-Term Fixed Strategy: For those who are more risk-averse, shorter 2- or 3-year fixed rates in the high 4% range offer a sweet spot. Buyers get immediate stability without anchoring themselves to a 5% rate for half a decade. They are positioning themselves to renew into a “hopefully” much lower rate in a few years when this inflationary episode likely relaxes.
Should You Lock In a Variable Rate Mortgage in BC?
When the news cycle gets scary, many homeowners with variable-rate mortgages panic and decide they want to “lock in.” But there is a massive, costly misconception about how this works.
Many believe they can lock into a fixed mortgage at their current variable rate. That is not the case. If you decide to lock in, your lender will offer you the prevailing 5-year fixed rate, which is typically 0.75% to 1.00% higher than what you are currently paying.
Locking in means an immediate jump in your monthly payment. You are paying a premium for security today, while simultaneously surrendering your ability to capitalize on rates dropping in the future.
A Real Client Story: The Price of a Restful Sleep
I recently helped a client secure a mortgage for her very first home. She had a rigid budget, and initially, the only way to comfortably make the numbers work was to opt for the lowest rate in town: a Variable mortgage.
However, after discussing her personal sensitivity to interest rate fluctuations, I presented a 3-year fixed-rate option that was just 0.35% higher than the variable rate. At the time, that difference meant increasing her mortgage payment by $72 a month.
Initially, she was not interested in paying the extra cost. But as market sentiment shifted this fall and the news began pricing in multiple rate hikes, the exposure to the market made her feel nervous about the future. So, we made the call to switch her into the 3-year fixed rate just before the rates began to climb.
Following today’s Bank of Canada rate hike, her variable rate would have increased significantly. As it stands today, she is only paying an additional $21 a month compared to current variable options.
The Bottom Line: Know Your Risk Tolerance
My most important advice for anyone navigating this market is to be fiercely honest with yourself about your risk tolerance. Do not just blindly chase the lowest mortgage rate.
For many people, it makes total financial and emotional sense to accept a slightly higher mortgage payment in exchange for the security of knowing you can tune out the economic news for the next three years. The old saying goes that you cannot put a price on happiness. But in the mortgage world, you can absolutely put a price on a restful sleep—and sometimes, it only costs $72 a month!