Canada Mortgage Rate History
Housing is a significant financial investment for many Canadians, so it is vital to understand historical mortgage rates and their fluctuations over the years. The Bank of Canada’s (BoC) prime rate significantly affects mortgage rates, which, in turn, influence the interest rates lenders charge borrowers.
By examining trends in the prime rate over time, you can gain better insight into the patterns rates follow and potentially predict future changes. This article will dive into historical interest rates in Canada, exploring how the prime rate has evolved and how these rates shape the housing market.
Key Highlights
- The Bank of Canada’s overnight rate was established in 1996 and directly influences the prime mortgage rates that banks and lenders offer.
- During the global oil crisis, the Bank of Canada rate reached a record high of 20.03% in 1981.
- The Bank of Canada policy rate reached record lows during the COVID-19 pandemic, dipping to 0.25%.
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Canada Mortgage Rates History (1975 to 2025)
The history of mortgage rates in Canada is a fascinating journey that significantly impacts the cost of homeownership, housing, and the economy as a whole. From the 1970s to the present, mortgage rates in Canada have been on a downward trend despite several peaks and troughs. Rates have decreased from their peak in the high double digits experienced in the 1980s during a period of high inflation and the global oil crisis to the historical lows of 2020-2021 during the COVID-19 pandemic, and are now back to the mid-single digits.
Source: bankofcanada.ca
The graph above shows the history of the prime rate since its introduction in 1935. The prime rate is the benchmark for all variable mortgages and lending products in Canada. Using this graph, you can see the many peaks and troughs that have occurred over the years and map out a pattern of how interest rates have gone up and down through the decades.
Average Posted Mortgage Rates for 1, 3, and 5-Year Terms
Who Historically Determines Mortgage Rates in Canada?
Established in 1935, the Bank of Canada (BoC) has been Canada’s main determinant of mortgage rates. The target for the overnight rate, also known as the policy interest rate, introduced in 1996, has been the main influencer on lenders’ setting their prime rates.
Lenders update their prime rates whenever the BoC updates the policy interest rate. Whenever the policy rate increases, lenders raise their prime rates. Whenever it decreases, lenders reduce their prime rates.
Why Do Historical Mortgage Rates Matter?
Historical mortgage rates are indicators of past market conditions and can help predict future changes. Mortgage rates significantly affect the cost of homeownership. Shelter costs comprise a significant portion of Canada’s Consumer Price Index (CPI) readings, with owned accommodations accounting for a substantial share of this basket.
In this BoC’s monetary policy tightening cycle round, shelter costs have kept Canada’s inflation rate high, preventing the Bank of Canada from considering rate cuts. The Bank must maintain the policy rate to control inflation and return it to its 1 to 2% target range.
Historical mortgage rate trends are essential for analyzing current market conditions and predicting future trends. The pattern that emerges from analyzing past rates can show what to expect from today’s rates and how the predicted direction of future rates will affect borrowing costs over the next few years.
Posted Historical 5-Year Mortgage Rates (1950s – Present)
While 5-year fixed rates were once Canada’s most popular mortgage option, the pandemic saw a shift to variable rates as interest rates hit historic lows. Many borrowers are now moving to short-term fixed-rate mortgages, allowing them to possibly lock into lower rates once they come up for renewal.
The 5-year fixed-rate mortgage is an important economic indicator because 5-year government bond yields influence this fixed rate. 5-year bond yields are often used to measure the state of the Canadian economy.
Posted Historical 3-Year Mortgage Rates (2000 – 2025)
3-year fixed-rate mortgages have gained popularity recently as a way to ride out high interest rates, as homeowners wait for rates to fall. This rate is most preferred during high-interest periods.
As shown above, the 3-year fixed rate has fluctuated similarly to the Bank of Canada’s Prime Rate over the years. Since 3 years is a shorter term, banks and lenders typically post the 3-year fixed rate higher than the 5-year rate. For this reason, some borrowers interested in a 3-year fixed-rate mortgage are often advised to consider variable and adjustable-rate mortgages, depending on personal preferences and financial circumstances.
Historical Monthly Mortgage Payments
Over the decades, average monthly mortgage payments have fluctuated dramatically, reflecting changes in the housing market and the overall economy. During periods of high interest rates, mortgage payments are typically significantly higher, placing a financial strain on many homeowners. However, it’s important to note that the last time interest rates hit double digits, the average price of a home in Canada relative to household incomes was much more affordable than it is today.
| Year | Average Home Price (Toronto) | Average Home Price Adjusted for Inflation in Today’s Dollars (Toronto) | Averaged 5-Year Fixed Interest Rate | Average Monthly Mortgage Payment | Average Monthly Mortgage Payment Adjusted for Inflation in Today’s Dollars |
|---|---|---|---|---|---|
| 1980 | $75,694 | $270,335.71 | 14.50% | $732.67 | $2,616.68 |
| 1985 | $109,094 | $280,793.45 | 11.75% | $885.36 | $2,279.01 |
| 1990 | $255,020 | $526,637.05 | 13.25% | $2,285.37 | $4,719.47 |
| 1995 | $200,220 | $376,267.65 | 8.95% | $1,320.96 | $2,482.44 |
| 2000 | $244,625 | $417,405.64 | 8.30% | $1,531.25 | $2,612.78 |
| 2005 | $337,747 | $517,920.59 | 6.05% | $1,736.78 | $2,663.28 |
| 2010 | $433,431 | $608,647.79 | 5.42% | $2,100.38 | $2,949.47 |
| 2015 | $623,529 | $813,298.70 | 4.64% | $2,799.81 | $3,651.93 |
| 2020 | $926,340 | $1,112,417.03 | 4.94% | $4,284.83 | $45,145.54 |
| 2025 | $1,067,968 | 6.09% | $5,512.13 |
In 1980, the average monthly mortgage payment for the average-priced home would have been approximately $733. Adjusted for inflation, that would be $2,617 in today’s dollars. The important part here is that, adjusting for inflation, the average home price in 1980 would be approximately $270,336 in today’s dollars, not even enough to purchase the smallest studio condo in the city.
Monthly Mortgage Payments vs. Monthly Household Income
When comparing mortgage payments as a percentage of a household’s monthly income, it’s evident that mortgage affordability has decreased since the 1980s. A single salary in Toronto was enough to keep the average monthly mortgage payment at approximately 25% of that income. Compare that figure to 2020, when a single salary no longer supports the average monthly mortgage payment.
| Year | Average Monthly Mortgage Payment | Median After-Tax Monthly Income | Monthly Payment to Disposable Income Ratio |
|---|---|---|---|
| 1980 | $732.67 | $2,975.00 | 24.6% |
| 1985 | $885.36 | $2,908.33 | 30.4% |
| 1990 | $2,285.37 | $2,958.33 | 77.3% |
| 1995 | $1,320.96 | $2,866.67 | 46.1% |
| 2000 | $1531.25 | $3,400.00 | 45.0% |
| 2005 | $1,736.78 | $3,291.67 | 52.8% |
| 2010 | $2,100.38 | $3,308.33 | 63.5% |
| 2015 | $2,799.81 | $2,808.33 | 99.7% |
| 2020 | $4,284.83 | $3,350.00 | 127.9% |
Chronological Dive into Mortgage Rate Trends
Here are some key historical moments in Canada’s economy that affected the Bank of Canada’s rate and housing markets.
Post-WWII Era: Baby Boomer Housing Demand
In light of Canada’s role as a key supplier of natural and manufactured resources during WWII, the country’s economy emerged stronger after the war. Employment rates were high, especially as women entered the workforce, boosting buying power across the board. Demand was high, and the Bank of Canada’s rate of 2.0% made it possible for many to invest in housing.
The 1970s and 1980s: Inflation and Stabilization
The global oil crisis and the OPEC oil embargo severely marked this period in the Bank of Canada’s prime rate history. In the late 1970s, the prime rate reached double digits (10.25%) for the first time and continued to increase well into the 1980s, reaching a record high of 20.03%.
The 1990s: Economic Recession and Recovery
The Canadian economy recovered from the 1980s recession in the following decade, and the Bank of Canada lowered interest rates. In the aftermath of the crisis, the inflation-target rate was implemented.
2000s: Global Financial Crisis and its Aftermath
The 2008 recession, also known as the Great Financial Crisis, significantly affected the Bank of Canada’s rate. In contrast to the 1980s, the rate decreased below 1% during the crisis, bottoming at 0.5% in March 2009.
2010s-2020s: Digital Revolution and Modern Challenges
In the early 2010s, Canada’s economy saw a modest recovery before being hit by another recession driven by falling oil prices. Once again, the rate dropped below 1%, reaching 0.75%.
Some economic growth occurred in the late 2010s (2018-2019), but low inflation rates kept the Bank of Canada rate at 1.75%. The onset of the pandemic quickly shattered this trend.
2020 – 2024: COVID & Inflation
Due to the economic shutdown caused by the COVID-19 pandemic in March 2020, the Bank of Canada took another dive below 1% and reached close to its lower limit at 0.25%. The rate remained stuck at this low throughout 2020 and 2021, as reduced consumer spending kept deflation in check.
With the world economy deeply disrupted and supply chains at a standstill, the pandemic’s tail end saw inflation rise above 5%. In March 2022, this marked the start of the Bank of Canada’s rate hikes to curb what they had thought was simply transitory inflation. This trend in rate hikes persisted into 2023.
In 2024, the focus shifted again as inflation showed clear signs of easing, economic growth slowed, and household debt-servicing costs weighed heavily on consumer behaviour. The BoC returned to cutting rates in mid-2024, marking the official end to the tightening cycle.
2025 – Present
The BoC delivered 7 back-to-back rate cuts until holding rates steady through the spring and summer of 2025. The Bank shifted to a more cautious stance amid global economic uncertainty that posed risks to the Canadian economy.
The Bank delivered two more rate cuts, followed by a pause, stating their confidence that monetary policy is at the right level to keep inflation close to its 2% target while supporting the economy through this period of adjustment and uncertainty.
Frequently Asked Questions
What was the lowest mortgage interest rate in Canada?
The lowest mortgage rate in Canada was 0.99% for an insured 5-year variable and 1.34% for a 5-year fixed insured rate (offered at nesto in 2021).
What was the highest mortgage rate ever in Canada?
The highest mortgage rate ever in Canada was during the 1980s global oil crisis. During this economic recession, the 5-year fixed uninsured rate skyrocketed to 18.35% as an average in 1981. At the same time, the BoC Prime rate hit 20.03% during that same year, so if you had a variable mortgage, you could’ve experienced an even higher rate.
How high can mortgage rates go in the future?
From a historical perspective, there’s no telling how high mortgage rates can go. That said, the historical trend suggests the neutral rate is in the 3% range.
Final Thoughts
Understanding historical mortgage rates in Canada and the impact of the Bank of Canada Prime Rate on mortgages can provide buyers with important insights into the current market and what’s to come in terms of the Canadian housing market.
This knowledge can help potential buyers plan their homebuying strategy, especially when paired with the most suitable advice from nesto’s mortgage experts.
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.
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