Your Variable Mortgage Just Got More Expensive — Now What?
If you have a variable-rate mortgage in Canada, October 28, 2026 was not a quiet day for your household budget. The Bank of Canada raised its key policy rate by 25 basis points, from 2.25% to 2.50%. It was the first rate hike since July 2023, and it arrived with September inflation still running at 3.1% — above the Bank’s comfort zone.
For most variable mortgage holders, that decision does not stay abstract for long. When the Bank’s policy rate moves, the big banks’ prime rate usually follows, and variable mortgage rates are typically priced as prime minus (or plus) a discount. In this case, the big banks have raised prime from 4.45% to 4.70%, effective October 29. Your lender will confirm your own new rate, your new payment, and the date it takes effect, and those details are what actually hit your bank account.
What Actually Changed on October 28
The Bank of Canada sets a target for the overnight rate, the rate at which major financial institutions lend each other money for one day. That rate ripples through the whole system: into prime rates, variable mortgages, lines of credit, and some savings products.
On October 28, 2026, the Bank raised that rate by 0.25 percentage points, to 2.50%, up from 2.25%. Because it was the first increase since July 2023, many variable-rate borrowers have spent more than three years in a world where rates mostly fell or stood still. A hike after that long stretch can feel like a shock even when the move itself is modest.
The stated backdrop was inflation. September consumer price inflation came in at 3.1%, still above the Bank’s 2% target. When inflation runs hot, central banks often raise rates to cool spending and borrowing. That does not make the hike painless for borrowers — it just explains why it happened.
The Real-Numbers Example: What 0.25% Actually Costs
Percentages sound small until you attach them to a mortgage balance. Here is an illustrative example with the arithmetic shown plainly, so you can scale it to your own balance.
Suppose you have a $400,000 variable-rate mortgage balance, and your rate rises by the full 0.25 percentage points from the hike. The extra interest for one year is:
$400,000 × 0.25% = $1,000 per year in additional interest.
Divide that by twelve months and you get about $83 per month in extra interest, before any amortization effects. That is the cleanest way to think about the size of the move: roughly $83 a month per $400,000 of balance, or roughly $250 a year for every $100,000 you owe.
Your actual payment change may differ. If your payment is fixed, your monthly payment might not move at all in the short term — but your amortization stretches, because more of that same payment is eaten by interest. If your payment adjusts, you may see something close to that $83 figure, though the exact number depends on your remaining amortization, your discount off prime, and how your lender rounds and applies the change. And if your balance is larger, the dollars scale up: on a $600,000 balance, the same math gives $600,000 × 0.25% = $1,500 per year, or about $125 per month in extra interest.
Move 1: Find Your New Payment and Your New Rate — in Writing
The first move is boring, and that is the point. Log in to your lender’s portal or call them, and confirm three things: your new interest rate, your new payment amount (if it changes), and the effective date. Then check whether your payment is fixed or adjustable, and what your remaining amortization looks like now.
Move 2: Rework Your Monthly Budget Around the New Number
Once you have the real number, put it in your budget before the higher payment (or the slower principal paydown) surprises you. If your payment rose by about $83 a month, that money has to come from somewhere — and it is much better to choose where than to discover a shortfall later.
Start with the easiest wins, not the hardest cuts. Look first at subscriptions you forgot about, food delivery habits that crept up, and discretionary spending that no longer matches what you value. A single streaming service or a weekly takeout habit can cover a large share of an $83 increase without touching anything that matters to you.
Then protect the non-negotiables: your mortgage payment itself, property taxes, insurance, utilities, groceries, and a minimum emergency cushion. If the hike means you are now running a monthly deficit, that is important information, not a failure. It tells you the size of the gap you need to close, whether through spending changes, extra income, or a conversation with your lender — and it tells you sooner, while you still have choices.
Move 3: Decide Whether Extra Payments Make Sense for You
One of the most common questions after a hike is whether to pay extra on the mortgage. Paying extra principal when rates are higher saves more interest per dollar than it did when rates were lower, because each extra dollar avoids interest at the new, higher rate. That is simple math, and it is genuinely attractive.
But it is not automatically the right move for everyone. Before you send extra money to your lender, check three things. First, do you have an emergency fund that could cover three to six months of essential expenses? If not, cash in a savings account you can reach is usually worth more than a slightly smaller mortgage balance. Second, do you carry higher-interest debt, like a credit card balance? Paying that off first almost always beats a mortgage prepayment, because the interest rate is higher. Third, are you inside your prepayment privileges? Paying beyond them can trigger a penalty that wipes out the benefit.
Move 4: Ask Your Lender the Right Questions Before You Switch Anything
Rate hikes are when lenders hear from a lot of nervous borrowers, and also when borrowers make the most expensive snap decisions. Before you consider locking into a fixed rate, switching lenders, or breaking your mortgage, ask your lender these questions and write down the answers: What is my current rate, discount, and remaining term? What fixed rates could I switch to, and what would the payment be? What is the penalty or cost to break my mortgage today, and how is it calculated? What are my prepayment privileges, and what happens to my amortization if I keep my payment the same?
The reason to ask, rather than assume, is that the penalty math can surprise you. On a variable mortgage, the prepayment penalty is often three months’ interest, which is usually far smaller than on a fixed mortgage — but “often” is not a promise, and your contract is the only source that counts. Similarly, a fixed rate that looks comforting today locks you in for years, and if rates fall again, you could be stuck paying above-market rates or facing a large penalty to get out.
Move 5: Build a Buffer for the Next Move, Not Just This One
The October hike may not be the last move rates make, in either direction. September inflation at 3.1% suggests the Bank is still watching prices closely, and future decisions will depend on data none of us can predict with certainty. The practical response is not to guess the next decision, but to build a buffer that makes the next decision less scary.
A rate-hike buffer can be simple: a separate savings account holding one to three extra mortgage payments, or a monthly automatic transfer of the amount your payment rose — even if your payment did not actually rise. If your payment is fixed and did not change, transferring that roughly $83 a month (on a $400,000 balance) into savings builds a cushion you can later use for a lump-sum payment, an emergency, or a future payment increase. If your payment did rise, the buffer is whatever you can set aside after covering the new payment, even if it starts at $25 a month.
Common Mistakes After a Rate Hike
The first mistake is ignoring a fixed payment that did not change. If your payment stays the same while your rate rises, your amortization extends and you pay more interest over the life of the mortgage. It feels like nothing happened, which is exactly why it is dangerous. Check your amortization, not just your payment.
The second mistake is rushing into a fixed rate out of fear. Fixed rates bring payment certainty, which has real value, but they also bring commitment and potentially large break penalties. Decide based on your time horizon, your risk tolerance, and the actual numbers your lender quotes — not on a headline or a single announcement.
The third mistake is draining your emergency fund to make a lump-sum mortgage payment. Liquidity matters. A smaller mortgage with no cash reserve leaves you exposed to the next surprise, whether that is a job loss, a roof repair, or another rate move. Keep the emergency fund first.
The fourth mistake is putting the extra cost on a credit card. Covering an $83 monthly increase with revolving credit at a much higher rate turns a manageable adjustment into expensive debt. If the budget genuinely does not balance, talk to your lender early — they would rather discuss options with you now than deal with missed payments later.
Frequently Asked Questions
Will my variable mortgage payment go up right away?
It depends on your mortgage type and your lender’s timing. Adjustable-payment variable mortgages usually see the payment rise after the lender updates prime, often within a billing cycle or two. Fixed-payment variable mortgages may keep the same payment while more of it goes to interest. Your lender’s notice is the definitive answer.
How much will prime actually rise?
Prime moved from 4.45% to 4.70% following the 0.25-percentage-point policy rate hike, effective October 29, as announced by Canada’s big banks. Each lender sets its own prime rate, so confirm your lender’s prime and your own rate.
Is this the first hike in a long time?
Yes. The October 28, 2026 increase was the first Bank of Canada rate hike since July 2023. That long gap is part of why it caught many borrowers off guard, even though the move itself was a quarter of a percentage point.
Should I lock into a fixed rate now?
There is no universal answer, and this article cannot give you one. Compare the fixed rate and payment your lender actually offers, the cost to break your current mortgage, how long you plan to stay in the home, and how much payment certainty matters to you. If the decision feels too big to make alone, speaking with a licensed mortgage professional about your specific situation is a sensible step.
Final Thought
A quarter-point hike is not a catastrophe, but it is not nothing either. On a $400,000 balance it is about $1,000 a year in extra interest — real money that deserves a real response. The borrowers who handle hikes best are rarely the ones who predict rates perfectly. They are the ones who check their actual payment, adjust their budget by the actual number, keep an emergency cushion, and ask their lender questions before making big switches.
This article is general information only and is not personalized financial, mortgage, or investment advice. Your mortgage terms, rate, and options depend on your contract and your lender — confirm the details that apply to you before making a decision.
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Happy Budgeting!
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