What the First Hike Since 2023 Means for Prime, Your Payment and Your Line of Credit
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The pause is over. On Wednesday, October 28, the Bank of Canada raised its target for the overnight rate by 25 basis points to 2.5%, ending a run of seven consecutive decisions at 2.25%. The central bank pointed to inflation that has run hotter than it expected, driven by gasoline prices and refinery margins, and now projects inflation to stay around 3% through much of 2027.
For most homeowners with a fixed-rate mortgage, nothing changes today. For anyone whose borrowing floats with prime, it does. Variable-rate mortgages and home equity lines of credit (HELOCs) are priced off each lender's prime rate, and prime has historically moved by the same amount as the Bank's rate within a day. That makes this the first increase in borrowing costs for prime-linked borrowers in more than three years.
This article covers three things: what changed, how it reaches your specific loan, and what to ask your lender this week. It includes a per-$100,000 table so you can scale the numbers to your own balance.
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The headline figure is the overnight rate: 2.5%, up from 2.25%. The Bank also moved its two related rates by the same amount, setting the Bank Rate at 2.75% and the deposit rate at 2.45%. A basis point is one-hundredth of a percentage point, so 25 basis points equals 0.25%.
The length of the pause matters. According to the Bank's policy interest rate decision table, the rate reached 2.25% with a cut on October 29, 2025, then held there on December 10, 2025, and on January 28, March 18, April 29, June 10, July 15 and September 2, 2026. Seven holds. Roughly a year of stable prime.
It is also the first increase since July 12, 2023, when the Bank lifted its rate to 5% at the peak of the last tightening cycle. Anyone who took out a variable mortgage or opened a HELOC after mid-2023 is seeing a rate increase on that product for the first time.
For the backdrop to the last hold, see our coverage of the Bank's seventh straight decision at 2.25%.
The short version: energy. The Bank said CPI inflation has been around 3% since April because of persistently high oil prices, and it expects inflation to reach about 3.5% by the end of the year. Strip out gasoline and the picture is calmer, at 2.2% in September, with core measures still close to 2%.
So why act? Because the Bank thinks those fuel costs are starting to spread. Its October 2026 Monetary Policy Report says inflation has been higher than anticipated, that elevated refinery margins have pushed fuel prices up further than crude prices alone would suggest, and that inflation should return close to 2% only by the middle of 2028. The release adds that businesses have mostly absorbed higher input costs so far, but Bank surveys suggest more of those costs will be passed through over the next year.
The forecast shift is large. The Bank now expects inflation to average about 3% in 2027, a full percentage point above its July projection, and Financial Post reported that September's annual inflation rate was 3.1%, with energy prices up roughly 19% from a year earlier.
The Bank's stated reason for the hike is narrow: to reduce the risk that high energy prices spread broadly to other goods and services. It said there could be a need to raise rates further but that it will proceed carefully. The next scheduled decision is December 9, 2026. We are not forecasting that decision, and neither should your budget assume one outcome over another.
The Bank flagged this possibility earlier in the year, as we reported when it warned that consecutive hikes were possible if oil kept pushing inflation higher.
The short version: energy. The Bank said CPI inflation has been around 3% since April because of persistently high oil prices, and it expects inflation to reach about 3.5% by the end of the year. Strip out gasoline and the picture is calmer, at 2.2% in September, with core measures still close to 2%.
So why act? Because the Bank thinks those fuel costs are starting to spread. Its October 2026 Monetary Policy Report says inflation has been higher than anticipated, that elevated refinery margins have pushed fuel prices up further than crude prices alone would suggest, and that inflation should return close to 2% only by the middle of 2028. The release adds that businesses have mostly absorbed higher input costs so far, but Bank surveys suggest more of those costs will be passed through over the next year.
The forecast shift is large. The Bank now expects inflation to average about 3% in 2027, a full percentage point above its July projection, and Financial Post reported that September's annual inflation rate was 3.1%, with energy prices up roughly 19% from a year earlier.
The Bank's stated reason for the hike is narrow: to reduce the risk that high energy prices spread broadly to other goods and services. It said there could be a need to raise rates further but that it will proceed carefully. The next scheduled decision is December 9, 2026. We are not forecasting that decision, and neither should your budget assume one outcome over another.
The Bank flagged this possibility earlier in the year, as we reported when it warned that consecutive hikes were possible if oil kept pushing inflation higher.
Your lender does not borrow at the overnight rate, and you do not pay it. The link runs through prime. In the Bank of Canada's own explainer on what drives mortgage rates, changes in the policy rate lead to similar changes in short-term rates, including the prime rate that banks use to price variable-rate mortgages.
Your contract then sets your rate as prime plus or minus a fixed spread. A mortgage at "prime minus 0.50%" stays 0.50% below prime for the whole term. When prime moves, your rate moves with it, automatically.
The precedent is tight. When the Bank cut by 25 basis points on October 29, 2025, Scotiabank lowered its prime lending rate from 4.70% to 4.45%, effective the next day, and the other big banks made the same move. Prime has sat at 4.45% since.
A matching increase this time would take prime from 4.45% to 4.70%. That is the assumption used throughout this article.
As of late Wednesday morning, the major banks had not yet posted new prime rates. TD's rates page still showed 4.45% for both its TD Prime Rate and its TD Mortgage Prime Rate, effective October 30, 2025.
Your lender does not borrow at the overnight rate, and you do not pay it. The link runs through prime. In the Bank of Canada's own explainer on what drives mortgage rates, changes in the policy rate lead to similar changes in short-term rates, including the prime rate that banks use to price variable-rate mortgages.
Your contract then sets your rate as prime plus or minus a fixed spread. A mortgage at "prime minus 0.50%" stays 0.50% below prime for the whole term. When prime moves, your rate moves with it, automatically.
The precedent is tight. When the Bank cut by 25 basis points on October 29, 2025, Scotiabank lowered its prime lending rate from 4.70% to 4.45%, effective the next day, and the other big banks made the same move. Prime has sat at 4.45% since.
A matching increase this time would take prime from 4.45% to 4.70%. That is the assumption used throughout this article.
As of late Wednesday morning, the major banks had not yet posted new prime rates. TD's rates page still showed 4.45% for both its TD Prime Rate and its TD Mortgage Prime Rate, effective October 30, 2025.
Some lenders publish more than one prime rate. TD, for example, has a separate Mortgage Prime Rate and Prime Rate. Check your contract to see which benchmark your mortgage or HELOC uses, then confirm that benchmark's new rate and effective date on your lender's website.
One more distinction. Fixed mortgage rates do not follow the overnight rate directly. They track Government of Canada bond yields, which is why fixed rates rose this fall while the Bank was still holding. If you have a fixed rate locked in, today's decision does not change your current payment.
"Variable-rate mortgage" covers two designs. They react to the same rate increase in opposite ways, and the difference decides whether you see this hike in your bank account or only on your statement.
Adjustable-payment variable (sometimes called adjustable-rate). Your payment is recalculated when prime changes. The rate goes up, the payment goes up, and your amortization stays on schedule. You feel it right away.
Fixed-payment variable. Your payment stays the same for the term. When prime rises, the lender takes more of that same payment as interest and puts less toward your balance. You may not notice anything until you read your annual statement.
Fixed-payment products have a limit. The Financial Consumer Agency of Canada explains that if rates rise to a certain trigger point, your lender may increase your payments, and that the trigger point is listed in your mortgage contract.
TD's own description of its variable-rate mortgage spells out what happens past that point: the payment no longer covers all the interest, and the unpaid interest starts to increase the amount owing.
One quarter-point hike will not push most recent borrowers anywhere near a trigger rate. On a payment set at 3.95% over 25 years, for example, the rate would need to roughly reach the mid-6% range before interest alone consumed the whole payment. But the trigger rate is specific to your contract, your balance and your payment, so ask for the number rather than estimating it.
Fixed-payment variable is common at the big banks. RBC describes its variable-rate mortgage the same way: if prime goes up, more of the payment goes to interest.
"Variable-rate mortgage" covers two designs. They react to the same rate increase in opposite ways, and the difference decides whether you see this hike in your bank account or only on your statement.
Adjustable-payment variable (sometimes called adjustable-rate). Your payment is recalculated when prime changes. The rate goes up, the payment goes up, and your amortization stays on schedule. You feel it right away.
Fixed-payment variable. Your payment stays the same for the term. When prime rises, the lender takes more of that same payment as interest and puts less toward your balance. You may not notice anything until you read your annual statement.
Fixed-payment products have a limit. The Financial Consumer Agency of Canada explains that if rates rise to a certain trigger point, your lender may increase your payments, and that the trigger point is listed in your mortgage contract.
TD's own description of its variable-rate mortgage spells out what happens past that point: the payment no longer covers all the interest, and the unpaid interest starts to increase the amount owing.
One quarter-point hike will not push most recent borrowers anywhere near a trigger rate. On a payment set at 3.95% over 25 years, for example, the rate would need to roughly reach the mid-6% range before interest alone consumed the whole payment. But the trigger rate is specific to your contract, your balance and your payment, so ask for the number rather than estimating it.
Fixed-payment variable is common at the big banks. RBC describes its variable-rate mortgage the same way: if prime goes up, more of the payment goes to interest.
The table assumes prime moves from 4.45% to 4.70%. Multiply each figure by your balance in hundreds of thousands. A $350,000 balance is 3.5 times each number.
How these were calculated: HELOC interest is balance × rate ÷ 12; lenders accrue HELOC interest daily, so a 31-day month costs slightly more. Mortgage payments use a standard amortization formula with monthly compounding; lenders' compounding conventions vary, and semi-annual compounding changes the 25-year payment increase by about 25 cents. Figures are rounded to the nearest cent and are estimates, not lender quotes. The interest change per $100,000 is the same whatever your spread over or under prime.
This is where headlines get confusing. A quarter point on $500,000 is about $1,250 a year in extra interest. Yet an adjustable 25-year payment on that balance rises only about $69 a month, roughly $832 a year.
Both are correct. The interest figure measures what the higher rate costs you. The payment figure measures what leaves your account. The adjustable payment rises less than the interest because part of every payment is principal, and the formula spreads the increase across the remaining amortization.
On a fixed-payment variable mortgage, the gap shows up somewhere else. The full $20.83 per $100,000 still goes to interest each month. It just comes out of the principal portion instead of a bigger payment, so your balance falls more slowly.
HELOCs are where this decision bites fastest and most completely. Most are interest-only on the revolving portion, so every dollar of the rate increase lands on your monthly cost. There is no principal portion to absorb it.
The Financial Consumer Agency of Canada notes that most HELOCs carry a variable rate, that your lender may change the rate at any time, and that federally regulated financial institutions must notify you in writing when it changes. Watch for that notice.
The math is linear. Each $100,000 outstanding costs about $20.83 more a month, or $250 a year, at a matching prime move. A $60,000 balance adds about $12.50 a month. A $200,000 balance adds about $41.67.
Many HELOCs sit inside a readvanceable mortgage that lets you move part of the balance into a fixed-term, fixed-rate portion with a set repayment schedule. That converts a floating, interest-only balance into one that is actually paid down.
Whether that makes sense depends on the fixed rate your lender offers today, any fees, and how quickly you plan to repay. Fixed rates rose this fall on bond yields, so a fixed-term portion is not automatically cheaper. Ask for the numbers and compare them against the table above before deciding.
Pull up your most recent mortgage and HELOC statements, then work through these questions with your lender or in your online banking.
If a conversion or renewal is on the table, it is worth comparing more than one lender's fixed offer. Our recent coverage of big-bank fixed-rate increases shows how quickly those offers have moved this fall.
None of this requires a decision today. It requires knowing your numbers before the next scheduled announcement on December 9.
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About the Author
Angela Nightingale is the Senior Editor at Homeowner.ca with two decades of experience in digital publishing and content strategy. She has owned two homes, taken on her share of DIY projects, and learned what most guides fail to mention. She writes from the belief that the best home guidance comes from people who have lived through the decisions — and her goal is always to leave readers feeling confident, not overwhelmed.
