5 Reasons to Not Freak Out over Mortgage Interest Rate Hikes

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Let’s use some historical numbers and trends to talk about our current interest rate environment and what Canadians can expect in the near future.

Over the past 30 years, the Bank of Canada has increased interest rates during six different periods. 

The interest rate increases during those periods of time ranged from 1.25 to 3.2 percentage points.

Why are rates being increased?

  • Unprecedented government deficits during the pandemic have required the Bank of Canada to hike interest rates aggressively 8 consecutive times to corral costly inflation.

  • The federal government, for years, has played down the servicing costs of this extraordinary deficit spending citing historically low interest rates.

  • When asked how the government plans to respond when rates rise, no indication has been given as to whether taxes will be raised or programs cut.

Either way, Canadians are now paying for government largesse with more expensive borrowing on all debt instruments; consumer loans, mortgages and government debt.

What to expect going forward based on past evidence?

Typically in Canada over the past 30 years, interest rate increases are followed fairly quickly by a period of declining rates.

Rate increases are used to slow the economy (inflation) while rate decreases boost the economy.

The Bank of Canada historically has raised interest rates too much (overshoot the target) then has to decrease these same rates in order to avoid prolonged economic slowdown or recession.

Not one of the six interest rate hiking cycles over the past 30 years has lasted more than 13 months.

However, Canadians are already 10 months into this current hiking cycle, with the most recent of the 8 increases having taken place on January 25, 2023.

On average, declining cycles tend to begin 5.7 months after rate hikes stop. 

If January’s rate hike of 0.25 basis points is the last interest rate hike, history would suggest that by about July 2023 we should see rates begin their decline.


The average interest rate hike over the 30 year historical reference was 1.95% and the average decline was 2.85%.

At this point, our interest rate hike cycle has seen a monstrous increase of 4.25%.

Experts are suggesting declines starting in the fall of 2023.

For variable rate borrowers – I know you are feeling the pain right now but history suggests that your rate will start coming back down before the end of 2023.

In case of payment difficulty, consider reaching out to discuss your options.  Lenders are in the process of extending amortizations and deferring payments.  These options are in place to avoid borrowers missing a mortgage payment. 

A missed mortgage payment is very bad for your credit and best to avoid.  Typically lenders appreciate communication and have strong incentives to help you through tough financial times.

The main message here is to not panic. 

Historical rates in this country have gone up then quickly gone down after inflation gets reined in.  Policy makers then aim to boost the economy by dropping rates.  It’s a rollercoaster but so is life.

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PS – One of my hobbies is blogging about mortgages, debt and government policy.  During the day I’m a MORTGAGE BROKER in Kelowna, BC!

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FP Investor, Interest rates are still rising, but investors should start preparing for when they come back down.  Ted Rechtshaffen, July 12,. 2022

Bank of Canada – https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/

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