By Chris Cavaghan | Modern Mortgage Group | October 30, 2026
Higher interest rates and a slowing economy can seem like contradictory headlines. For anyone buying a home, renewing a mortgage or watching their household budget, the question is reasonable: why make borrowing more expensive when growth is losing momentum?
The answer comes down to the difference between economic growth and inflation—and what each means for your mortgage.
What happened this week?
On October 28, the Bank of Canada increased its overnight policy rate by 0.25 percentage points, from 2.25% to 2.50%. This is the central bank’s policy rate, not the mortgage rate available to borrowers.
The Bank’s concern is that persistently expensive energy could feed into broader prices. It identified rising production and transportation costs and the risk of businesses passing more of those costs to customers. It left further increases possible while emphasizing a cautious approach.
Then, Statistics Canada’s October 30 release reported that real GDP was unchanged in August for a second consecutive month. Its preliminary September estimate points to a 0.1% decline. Wholesale trade and public administration weighed on August activity, while retail trade and manufacturing grew. Some weakness reflected the winding down of Census work and production disruptions, so the report should not be read as evidence that every part of the economy is weakening.
These GDP figures describe activity before this week’s rate decision. The October 28 increase did not cause August’s flat reading. September’s estimate is preliminary and subject to revision.
Why raise rates when growth is weak?
Slower growth does not automatically mean inflation has disappeared. A supply shock can raise costs while also squeezing spending and business activity. Interest rates cannot produce more oil, but monetary policy can influence demand and how widely price pressures spread.
My interpretation is that the Bank is balancing competing risks: allowing inflation to become more persistent, or placing too much pressure on an economy with limited momentum. That is a difficult judgment, and one weak monthly report cannot settle it. The headline describes slowing momentum; it does not establish that Canada is in a recession.
Variable mortgages: check your payment structure
A variable mortgage typically follows your lender’s prime rate, with the discount or premium set out in your contract. Prime is influenced by the Bank of Canada, but your lender sets it. Check the lender’s notice for your actual rate and effective date.
With an adjustable-payment mortgage, a higher rate generally means a higher payment. With a variable mortgage that has fixed payments, more of the payment goes toward interest and less toward principal. Contract provisions, including trigger points, can eventually require a payment change or other action.
If you hold a variable mortgage, ask what the change means for your payment, remaining amortization and options. A payment that stays the same can still leave you paying down less debt.
Fixed mortgages: a different pricing mechanism
An existing fixed mortgage rate stays unchanged for its term. New fixed mortgage offers are influenced by bond yields, funding costs and lender pricing. Government of Canada bond yields reflect expectations about future inflation and interest rates, so fixed mortgage offers can move before a Bank announcement or differently from the policy rate.
Fixed offers do not automatically rise by 0.25 percentage points because the Bank increased its rate by that amount. At renewal, however, your new rate and payment will depend on the terms available then.
What does this mean in Victoria?
The latest published Victoria Real Estate Board monthly report, as of October 30, covers September 2026. It recorded 463 sales, down 16.4% from September 2025, and 3,811 active listings, up 3.2% year over year. The Board described September as a buyer’s market, while cautioning that one month does not establish a lasting trend.
For buyers, greater selection may create room for careful comparison and negotiation. That does not guarantee a bargain or falling prices in every neighbourhood. Work with your REALTOR® on the property and with your mortgage broker on the financing.
A practical plan for buyers and homeowners
- Buying: Refresh your pre-approval and compare payments at today’s rates and higher-rate scenarios. Set a comfortable household budget before deciding what to offer.
- Renewing: Review your options early. Compare the total cost, term, flexibility and prepayment conditions alongside the interest rate.
- Considering a switch or refinance: Include any penalty, legal costs and fees in the calculation. A lower advertised rate does not automatically produce savings.
- Feeling payment pressure: Speak with your lender and broker early, while there is time to review the options available under your mortgage.
Why nobody can promise where rates go next
Rates depend on information that keeps changing: inflation, employment, energy prices, trade policy and global financial conditions. GDP estimates are also revised. The Bank’s next decision and the bond market’s response can change as new evidence arrives.
My approach is to compare plausible scenarios with you. Can your budget handle a higher variable payment? How much do you value fixed-payment certainty? Could a move or refinance make flexibility especially important? Those questions help build a mortgage plan that works even when a forecast does not.
If you are buying, renewing or wondering how this week’s news affects your mortgage, let’s review your numbers and find a structure that fits your life.
Chris Cavaghan
Modern Mortgage Group | Dominion Lending Centres
General information as of October 30, 2026. Mortgage options depend on your circumstances, qualification and lender terms.