How Mortgage Rates Are Determined in Canada

Two people who apply for a mortgage on the same day can be offered different rates, and the same person can be offered a different rate a month later. Part of the rate comes from markets no lender controls, and part comes from how the lender prices your application. This page takes each piece in turn. It is part of the mortgage rates hub, which links to a guide on each benchmark.

What lenders say they weigh

Each lender sets its own rates. The Financial Consumer Agency of Canada (FCAC) lists the factors lenders consider when they set yours: the length of the term, their current prime and posted rates, whether you qualify for a discounted rate, whether you choose a fixed, variable or combined rate, your credit history, and whether you’re self-employed. The sections below start with the market benchmarks, then what moves them (inflation, trade shocks and bank capital rules), then your own file.

The benchmarks lenders price from

All six series come from the Bank of Canada. The last two average the rates on mortgages lenders actually funded, which is why they sit well below the posted rate. FCAC describes a discounted rate as one lower than the lender’s posted rate and suggests asking for one; comparing offers and negotiating are covered in how to get a lower mortgage rate.

Variable rates follow the policy rate through prime

The Bank of Canada sets its policy rate on scheduled announcement dates. The Bank of Canada describes the next link: each financial institution sets its own prime rate as a function of its cost of funding, which is influenced by the target for the overnight rate. A variable mortgage is priced as prime plus or minus a margin, so when prime moves, the rate moves with it. How the Bank decides is covered in the Bank of Canada policy rate explained, and how variable offers compare in variable mortgage rates. Choosing between the two products is covered in fixed vs variable mortgages.

Fixed rates follow bond yields

A fixed rate holds the lender’s price for the whole term, so it tracks what it costs to borrow for that long, and Government of Canada bond yields for a similar term are the market benchmark for that cost. Those yields can move without any change in the policy rate. In its September 2, 2026 announcement, which left the policy rate unchanged, the Bank of Canada noted: “Long-term bond yields have moved up globally, including in Canada.” The mechanics are in how bond yields affect mortgage rates, and the pull of US markets in how the US Federal Reserve affects Canadian mortgages.

Term length matters too. FCAC says lenders tend to charge more for longer terms, though not always. The major banks’ posted conventional rates as of September 30, 2026 were 5.49% for 1 year, 6.05% for 3 years and 6.09% for 5 years.

Inflation

Inflation reaches mortgage rates through both channels.

The Bank of Canada aims to keep inflation at the 2% midpoint of a 1 to 3% target range, measured as the 12-month change in the total consumer price index (CPI). To look past short-lived swings it also follows core measures; its preferred ones are CPI-trim, CPI-median, and CPI-common.

Source: Statistics Canada, released 2026-09-14. The next CPI release is scheduled for 2026-10-19.

The last large swing shows the chain at work. Total CPI inflation reached 8.1% in June 2022, and the Bank raised its policy rate from 0.25% to 5.00% by July 12, 2023. Prime and variable rates rose with each increase. The year-by-year record is in mortgage rate history.

Because bond markets price the inflation they expect, fixed rates can move before the CPI does. A CPI report that differs from what markets expected can move bond yields on the day it comes out, with no Bank of Canada decision at all.

Trade shocks and tariffs

Tariffs reach mortgage rates only indirectly, through prices, growth and bond markets. The Government of Canada describes the latest round as follows:

Source: Department of Finance Canada, news release of August 25, 2026.

The effects pull in opposite directions. Tariffs and counter-tariffs can raise prices, which argues for keeping rates higher, and they can slow the economy, which argues for lowering them. In its September 2, 2026 rate announcement the Bank of Canada named both: “new US tariffs and threats of further action pose risks to the sustainability of the recovery”, and “the upside risks to inflation have increased, while new tariffs make growth prospects more uncertain”. It held the policy rate at 2.25% that day.

For a borrower, this means trade news is one more input to the policy rate and to bond yields rather than a separate force on mortgage pricing. A variable rate moves when lenders change prime, which follows the Bank’s policy rate; a fixed rate offered at renewal reflects bond yields at that time. Published views on where rates go next are collected in interest rate forecasts for Canada.

Bank capital rules (OSFI)

The Office of the Superintendent of Financial Institutions (OSFI) regulates federally regulated lenders, including the banks. It does not set mortgage rates. It sets how much capital a lender must hold against each loan, measured as a share of “risk-weighted assets”, and a loan that needs more capital costs the lender more to make. That cost is one of the inputs a lender weighs when it prices mortgages, alongside its funding costs and competition.

How much capital the largest banks hold

OSFI’s Domestic Stability Buffer (DSB) applies to Canada’s six largest banks, the domestic systemically important banks (D-SIBs). On June 19, 2026 OSFI lowered the DSB to 3.0% from 3.5% and narrowed its range to 0% to 3% from 0% to 4%. OSFI sets the level twice a year, in June and December, and can change it at any time. The buffer is one of four layers in OSFI’s expectation for these banks’ common equity tier 1 (CET1) capital:

OSFI reports that as of April 30, 2026 these banks held an average of 13.5% of risk-weighted assets, above that expectation. A lower buffer frees capital the banks can use to lend; OSFI says the DSB supports banks’ ability to continue lending as conditions change.

Why insured mortgages need less capital

How much a mortgage adds to risk-weighted assets depends on its risk weight. Under the standardized approach in chapter 4 of OSFI’s Capital Adequacy Requirements, a mortgage insured under the National Housing Act (or an equivalent provincial program) may take the Government of Canada risk weight of 0%. Mortgages insured by a private insurer with a federal backstop guarantee have their own treatment in the same chapter. An uninsured home loan takes a weight set by its loan-to-value ratio (LTV):

Source: OSFI, Capital Adequacy Requirements, chapter 4, Table 10 (loans whose repayment does not depend on rent from the property; rental properties have a separate table). Lenders that OSFI has approved to use their own risk models (the internal ratings-based approach in chapter 5) calculate risk weights differently, so the table shows the standardized method rather than every bank’s actual weights.

That difference is one reason insured mortgages can be priced lower. In the Bank of Canada’s data for fixed mortgages with terms of 5 years and over that chartered banks funded (including renewals and refinancing) in July 2026, insured loans averaged 4.05% and uninsured loans 4.49%, a gap of 0.44 percentage points. The insured borrower pays for that through the mortgage insurance premium; the trade-off is laid out in insured vs uninsured mortgages. OSFI’s rules cover federally regulated lenders; the kinds of lenders are compared in types of mortgage lenders.

OSFI also sets underwriting rules for these lenders in Guideline B-20, including the minimum qualifying rate. That test decides how large a mortgage you can qualify for, not the rate you pay; it is covered in the mortgage stress test.

Your own file

Once the market rates are set, the lender prices your application. Of the factors FCAC lists, these are the ones that depend on you:

• Your credit history. FCAC says lenders use your credit report and score to decide whether to lend and how much interest to charge. See how your credit score affects your mortgage rate.
• Self-employment. FCAC lists it among the factors; how lenders verify self-employed income is covered in mortgages for the self-employed.
• Whether you qualify for a discount. Posted rates are the starting point; the discount is where shopping and negotiating make a difference (how to get a lower mortgage rate).
• Term and rate type. Your choice of term length and of fixed, variable or a combination changes which benchmark your rate is built on.
• Insured or uninsured. With less than 20% down you need mortgage loan insurance. Insured mortgages are priced differently, as shown above. The down payment rules are in the down payment calculator.

Rates can change between your application and your closing date. A rate hold keeps an offered rate for a set period while you shop or close.

Related guides

• Mortgage rates hub
• The Bank of Canada policy rate explained
• The prime rate explained
• How bond yields affect mortgage rates
• Interest rate forecasts for Canada
• How your credit score affects your mortgage rate