A Look Back: The History of Mortgage Rates in Canada

Mortgage rates in Canada have been anything but boring. From sky-high peaks in the 1980s to rock-bottom lows during the pandemic, interest rates have shaped everything from home prices to household budgets. Whether you’re a first-time buyer, a seasoned homeowner, or just mortgage-curious, understanding the historical trends of Canadian mortgage rates can give you valuable insights into where things might be headed.

Let’s dive into how mortgage rates have evolved in Canada over time — and what it means for you today.

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Who Actually Decides Mortgage Rates in Canada?

Before we dig into the history, let’s answer the big question: who calls the shots on mortgage rates?

The Bank of Canada (BoC) is the main player. Since its founding in 1935, the BoC has set what’s called the policy interest rate (officially the overnight rate), which guides how expensive it is for banks to borrow money. Lenders then use this policy rate to determine their own prime rate, and most variable-rate mortgages in Canada are based on this prime.

In short:

• BoC policy rate goes up → Prime rate goes up → Variable mortgage rates go up.
• BoC policy rate goes down → Prime rate goes down → Variable mortgage rates go down.

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Canada’s Mortgage Rate Journey: From 1980 to Today

1980s: The Wild Years

The early ’80s were brutal for homeowners. Thanks to global oil shocks and runaway inflation, the Bank of Canada rate hit a jaw-dropping 20.03% in 1981. That meant many Canadians were paying mortgage rates well above 18%. It was a time when even a modest home came with massive monthly payments.

1990s: Recovery Mode

After the 1980s recession, the BoC shifted focus toward stability. In 1991, they introduced the inflation-targeting policy we still use today. This helped bring inflation — and rates — down gradually. By the end of the decade, rates had dipped into single digits again.

2000s: From Crisis to Calm

The early 2000s were relatively calm, but the 2008 global financial crisis hit hard. The BoC slashed its policy rate to 0.50% in 2009, sparking a wave of affordable mortgages. Rates hovered low for several years as the economy slowly recovered.

2010s: Low But Steady

Throughout the 2010s, Canada enjoyed modest growth and tame inflation. The BoC kept rates low, peaking only around 1.75% before COVID-19 hit. Fixed and variable mortgage rates followed suit, making homeownership feel more accessible — at least from an interest rate perspective.

2020 to 2024: Pandemic to Inflation Surge

When COVID-19 shook the world in 2020, the BoC responded by slashing its policy rate to 0.25% — the lowest in Canadian history. Mortgage rates dropped dramatically, with some lenders offering 5-year fixed rates under 1.50%.

But the good times didn’t last. As the economy reopened and inflation soared, the BoC started hiking rates in 2022. By mid-2023, the policy rate hit 5.00%, bringing mortgage rates back above 6.00% for the first time in years.

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5-Year vs 3-Year Mortgage Rates: How Have They Performed?

In Canada, the 5-year fixed mortgage has long been the most popular option. It offers stability, predictability, and usually better rates than shorter terms.

However, during times of rate volatility — like in 2022–2023 — many Canadians started considering shorter-term fixed mortgages like 3-year options. These give you time to wait out the high-rate environment while avoiding a long-term lock-in.

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How Monthly Payments Have Shifted Over the Years

Mortgage payments have always fluctuated based on both interest rates and home prices.

In 1980, the average monthly mortgage payment was about $725, which adjusts to around $2,720 in today’s dollars. But homes back then cost significantly less — when adjusted for inflation, the average price was just $283,941.

Fast forward to today, and while rates are lower than in the ’80s, sky-high home prices have changed the game. The average Canadian home now costs 2.5x more, meaning payments are much higher even if interest rates seem modest.

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Income vs Mortgage Payments: Then vs Now

Back in the 1980s, a single salary could comfortably cover the average mortgage. In fact, mortgage payments took up just 27% of a typical monthly income.

But as of 2024? Less than 3% of Canadians can afford an average-priced home on a single income. That’s a major shift in affordability — not just because of rates, but because income hasn’t kept pace with real estate prices.

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Key Economic Moments That Shaped Mortgage Rates

• Post-WWII (1940s–50s): Low rates and high demand from baby boomers fueled a housing boom.
• 1970s–1980s: Oil embargo + inflation = BoC rate over 20%.
• 1990s: Recession recovery and the birth of inflation targeting.
• 2008: Financial crisis prompted historic rate cuts.
• 2020: COVID-19 pandemic drove rates to all-time lows.
• 2022–2023: Inflation returns, BoC raises rates aggressively.
• 2024: With inflation cooling, the BoC starts cutting rates again — from 5.00% down to 3.25% by year-end.

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FAQs: Canadian Mortgage Rate History

What’s the highest rate Canada has ever seen?
In 1981, the BoC’s policy rate reached 20.03%, driving mortgage rates even higher.

Are rates high today?
Compared to the early 2020s? Yes. Compared to the 1980s? Not even close. Today’s rates are high relative to recent years but still below historic peaks.

Why do mortgage rates follow bond yields?
Fixed mortgage rates — especially 5-year terms — track the 5-year Government of Canada bond yield. Bond markets reflect investor expectations for inflation and BoC policy.

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Final Thoughts: What Can the Past Teach Us?

Mortgage rates in Canada have gone through dramatic ups and downs, shaped by everything from global oil shocks to pandemics. By understanding this history, you’re better equipped to plan for the future.

Whether rates are climbing, falling, or holding steady, your best bet is to stay informed and make a mortgage decision based on your personal financial situation — not just market noise