Are you patiently waiting to buy a home only to be discouraged by rising mortgage rates in Toronto? If you are wondering why interest rates keep skyrocketing and when there may be an end in sight, you may find some peace in knowing why this is occurring in the first place. It may help you understand what precipitates these changes, allowing you to plan accordingly.

The Bank of Canada has been steadily increasing mortgage rates throughout the year. This increase means that Canadians are spending more money on monthly mortgage payments. Yet, what drives these increases, and what is the impact on Canadians?

What makes rates increase?

The financial health of borrowers impacts interest rates after a loan is offered. However, other economic factors and the government’s monetary policy dictate the overall mortgage rate system. Basic economic principles of supply and demand reflect several factors at play, which include the following:


Rising mortgage rates tend to reflect inflation. When inflation is high, spending is discouraged. Inflation erodes buying power as lenders attempt to maintain rates at a level that overcomes buying power erosion. They must ensure that returns on interest generate an actual net profit. You don’t have to go far to notice the effects of inflation. Rising grocery costs, for example, are increasing at a rapid rate. The last time we saw these hikes was decades ago. Some experts anticipate further spikes in the coming months. When we compare grocery costs from 2021 to 2022, the price has gone up by 11.4%.

Economic Growth

Strong growth generates higher interest rates, while weaker growth has the opposite effect. In a strong economy, more businesses borrow from investors for expansion. Mortgage providers must pay higher rates to encourage investor lending.

The Global Economy

Frequently, Canadian banks borrow money from other countries like the United States. Global financial markets are interconnected, and Canadian interest rates reflect the condition of the global economy.

Economic Strength

In a strong economy, rates are increased to prevent inflation from exceeding the target. In a weak economy, policy rates are lowered to prevent inflation from going below the target. Policy interest rate changes generate movement in short-term interest rates. This will include the prime rates used by banks for pricing variable-rate mortgages. Changes may affect long-term rates. This is especially true if the changes are expected to be long-lasting.

In previous decades, variable and high inflation eroded money value. As a response, investors wanted higher interest rates to combat the effects. This resulted in an increase in funding costs with mortgage lenders.

However, since the Bank of Canada started dealing with inflation in 1990, future uncertainty and interest rates have declined. Funding costs are now considerably lower.

What can I expect for mortgage rates in Toronto?

If you are uncertain about determining what to expect when applying for a mortgage, or want to know if this is the best time to buy a house, contact our specialists at 888-495-4825 or 416-969-8130 to book an appointment. You can also contact us online here.

We can review current interest rates and find a solution for your budget. At Northwood Mortgage, various mortgage rates in Toronto are available to you. We will assist you in finding your best option.