Bank of Canada rate hike expected to raise borrowing costs and lift savers' returns

The Bank of Canada is expected to raise its policy rate by a quarter of a percentage point on Wednesday, a move that will affect borrowers and savers across the country. Variable-rate mortgage holders could see their interest rate rise from 3.45% to 3.70%, adding roughly C$82 to a typical monthly payment and C$984 annually, according to estimates from Ratehub.ca. Fixed-rate borrowers will continue to be priced off bond yields, which have climbed amid concerns about inflation, the conflict in Iran and U.S. fiscal policy.

"Borrowers who locked in low rates early in the pandemic have mostly renewed, but many still face renewals later this year and in 2027 with low-rate mortgages from 2021-22," said Jamie David, vice-president of mortgages at Ratehub.

Lines of credit will also become more expensive. With an average home-equity line balance of about C$59,000 and a current rate of 4.95%, a 0.25-point hike would raise monthly interest payments by roughly C$12. Variable-rate auto loans are likely to follow suit; the average dealership loan stood at C$58,500 in September, and higher rates could reduce the availability of zero-interest promotions, noted Robert Karwel of J.D. Power.

Savings-account rates tend to lag behind borrowing rates after a central-bank move, meaning depositors may not see immediate gains. Bond markets, however, often price in expected rate changes ahead of announcements, so yields could rise further if the Bank signals additional hikes. Higher yields depress bond prices but also point to higher future returns for new bond purchases. Guaranteed investment certificates (GICs) are already seeing rate increases, with some short-term certificates surpassing 4% as bond yields climb.

Overall, the anticipated rate increase will raise costs for borrowers while offering modest upside for savers in interest-bearing products.