Are High Interest Rates Historically the Norm? Yes, and Here’s What to Know

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Canada spent more than a decade in an interest rate environment that was anything but normal. From the aftermath of the Global Financial Crisis (GFC) through the pandemic, borrowing costs remained near historic lows, reshaping how Canadians bought homes, managed debt, and assessed mortgage affordability. That era began to unwind in 2022, as inflation surged amid strong demand, supply disruptions, and rising food and energy costs, prompting a sharp reset in interest rates.

Looking at how interest rates have behaved historically across Canada helps explain why the ultra-low rates of the 2010s were the exception, rather than the rule. Here’s what a return to more typical interest rate levels means for homeowners, buyers, and borrowers moving forward.

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Key Takeaways

• Unique economic crises influenced low interest rates from 2009 to 2020.
• Interest rates typically exhibited a cyclical pattern.
• Interest rates have returned to a more normal range.

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Understanding Current Canadian Mortgage Interest Rates 

Canada is now in a transition phase following one of the most aggressive tightening cycles in decades. The Bank of Canada is no longer actively raising the policy rate, but it is also moving cautiously as inflation remains close to its target. Inflation has cooled and stabilized compared to previous years, allowing policymakers to shift toward normalization rather than stimulus.  

The most significant risk homeowners now face is renewal payment shock. Among Canadians coming up for renewal, many are transitioning from pandemic-era rates to rates that more closely reflect long-term historical averages. Higher bond yields and tighter lending standards mean monthly payments are unlikely to return to pandemic-era lows. For many households, this period represents a return to the conditions that higher interest rates have historically produced.

What History Tells Us About Interest Rates in Canada

The period of exceptionally low interest rates Canadians experienced from 2009 through 2022 was not typical by historical standards. It was an extended response to the global financial crisis, weak global growth, and the repeated economic shocks that followed. While it shaped an entire generation of borrowers, it represented a deviation from normal interest rate cycles. 

Historically, interest rates have moved in clear cycles, rising and falling alongside inflation, growth, and financial stability risks. Mortgage rates reached extreme highs, peaking in the 80s at all-time highs above 20% before falling to the low double digits, where they remained for the following decade. By the early 90s, rates had moderated but still averaged around 8% until 2009. 

Post Financial Crisis and the Age of Ultra Low Rates

Following the 2008 financial crisis, rates fell sharply and remained unusually low for more than a decade. From 2009 until 2020, average mortgage rates were approximately 4%. During the pandemic, interest rates reached new historic lows, averaging around 2% as job losses and uncertainty affected the economic outlook. This era of cheap borrowing proved temporary as inflation surged after the pandemic and rates moved back toward levels more consistent with the 90s and early 2000s. 

Today’s Rates and the Return to Historical Norms

Today’s interest rate environment reflects a return toward historical norms. While rates are no longer rising aggressively and modest cuts have been underway, borrowing costs have shifted closer to Canada’s long-run historical averages. Looking further back to the 1950s, 1960s, and 1970s reinforces the same conclusion: mid-single-digit to high-single-digit interest rates have historically been far more common than the low rates many borrowers have come to expect.

Interest Rate Impacts on Borrowers and the Housing Market 

The era of low interest rates had a profound effect on borrowing behaviour and the housing market. Lower interest rates stimulated borrowing and led to a housing market boom. This surge in demand, combined with limited housing supply, drove home prices sharply higher nationwide. 

During 2020 and 2021 in particular, record-low interest rates amplified this, accelerating price growth and reshaping affordability. While low rates helped many Canadians enter the market or upgrade their homes, they also laid the groundwork for the affordability challenges that persist today. 

Why Entering the Housing Market Is Harder for First-Time Buyers

First-time buyers continue to struggle with elevated home prices, even after some cooling, coupled with higher borrowing costs that reduce purchasing power. In addition, mortgage stress-test qualification rules require borrowers to qualify at higher interest rates than they will actually pay. 

The combination of high home prices and qualifying rates can significantly raise the income required to qualify for a home loan. Often, this forces buyers to either delay their purchase or rely on much larger downpayments to offset higher costs. For many, entering the market now requires an above-average income, substantial savings, or both, making the path to homeownership more challenging. 

The Renewal Reset Facing Canadian Homeowners

For existing homeowners approaching renewal, many are likely to face an interest rate shock. Many mortgages taken out during the low interest rate era are coming up for renewal, particularly for borrowers on 5-year fixed terms. As these borrowers renew, they are likely to face interest rates at least double their current rate. 

This renewal shock can translate into a significantly higher mortgage payment, reduced cash flow, or difficult trade-offs. Some homeowners may choose to extend their amortization to make payments more manageable, while others may draw on savings or make lump-sum payments to reduce their outstanding balance. Reassessing household budgets has become increasingly common as mortgage costs take up a larger share of monthly expenses.   

Frequently Asked Questions

Final Thoughts

While low interest rates in Canada from 2009 to 2022 were an exception, it’s essential to recognize that, historically, interest rates have typically been much higher than what borrowers now consider the norm. By understanding the cyclical nature of interest rates and anticipating potential shifts, you can position yourself for a return to an interest rate environment more aligned with historical norms. 

Contact nesto mortgage experts for advice if you’re considering purchasing your first home, searching for the best rate on your mortgage renewal, or assessing your ability to refinance.

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Why Choose nesto

At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and the quality of their advice. nesto aims to transform the mortgage industry by providing honest advice and competitive rates through a 100% digital, transparent, and seamless process.

nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.

Contact our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.

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