What Happens When Interest Rates Go Up? A Simple Guide for London-Area Homeowners and Buyers

October 29, 2026

On October 28, 2026, the Bank of Canada raised its key interest rate from 2.25% to 2.50%. It was the first increase since July 2023, after more than a year of holding steady. The Bank said it made the move because high energy prices are pushing up the cost of living, and it wants to stop that from spreading to everything else. It also said more increases could come, but that it will move carefully.

A quarter of a percent may sound small. But for many families in London, Middlesex and Elgin, it can change monthly mortgage payments, the cost of a line of credit and how much house a buyer can afford.

This guide explains, in simple words, how a rate increase works, what it does to different kinds of loans and what your options are. The goal is not to worry you. It is to help you understand what is happening, so you can make calm, smart choices.

First, what is an interest rate?

When you borrow money, you pay back the money plus a little extra. That extra is called interest. It is like a rental fee for using someone else's money. The interest rate tells you how big that fee is.

Here is a simple example. If you borrow $100 at 5% for a year, you pay back about $105. If the rate goes up to 6%, you pay back about $106. On a $100 loan, that is just one dollar. On a $500,000 mortgage, the difference adds up to thousands of dollars a year.

Who decides interest rates?

The Bank of Canada is like the referee of Canada's money system. One of its main jobs is to keep prices from rising too fast. That rising of prices is called inflation.

When prices rise too fast, the Bank of Canada raises its key interest rate. This makes borrowing more expensive, so people and businesses spend a little less. That helps slow price increases down. When the economy needs a boost, it does the opposite and lowers rates.

The Bank of Canada does not set your mortgage rate directly. Instead, there is a chain reaction:

• Banks follow the Bank of Canada. Each bank has a "prime rate," which is its base rate for many loans. When the Bank of Canada moves, banks usually move their prime rate by the same amount. Before this increase, prime was 4.45% at the big banks, so it would typically rise to about 4.70%.
• Fixed rates follow the bond market. Fixed mortgage rates are based mostly on something called bond yields, which move with what investors expect will happen next. That is why fixed rates can change even when the Bank of Canada does nothing.

The next scheduled Bank of Canada announcement is December 9, 2026.

What happens to a variable-rate mortgage?

A variable-rate mortgage is tied to your lender's prime rate. When prime goes up, your interest rate goes up too, usually within days. It is like a boat on the water: when the water rises, the boat rises with it.

But not every variable mortgage feels the change the same way. There are two main kinds:

Adjustable-rate (your payment changes)

With this kind, your monthly payment goes up as soon as the rate goes up. You feel it right away in your bank account, but your payoff plan stays on track.

Fixed-payment variable (your payment stays the same)

With this kind, your payment does not change. Instead, more of each payment goes to interest and less goes to paying down what you owe. You may not notice it at first, but it takes you longer to pay off your home.

If rates rise a lot, you can reach what is called a trigger rate. That is the point where your whole payment only covers the interest, and none of it pays down the loan. If that happens, your lender will contact you and may ask you to raise your payment, make a lump-sum payment or change your plan.

Not sure which kind you have? Look at your mortgage paperwork or call your lender. It is one of the most useful things to know right now.

What happens to a fixed-rate mortgage?

A fixed-rate mortgage is like a price that is locked in a box. For the length of your term (often five years), your rate and your payment stay the same, no matter what the Bank of Canada does.

If you already have a fixed rate, this week's increase does not change your payment today. You are protected until your term ends.

The change comes at renewal. When your term ends, you get a new rate based on what rates are at that time. If rates are higher than when you signed, your payment can go up.

This matters a lot right now. Many homeowners in our area bought or refinanced in 2021 and early 2022, when five-year fixed rates were often near 2%. Those mortgages are coming up for renewal now and through 2027, at rates that are much higher. For some families, that can mean a payment jump of several hundred dollars a month.

For new fixed rates, remember the chain reaction from earlier. Fixed rates follow the bond market, not the Bank of Canada directly. Lenders had already started raising some fixed rates in September and October 2026, before this announcement, because investors expected rates to rise.

What happens to a HELOC and other debt?

A HELOC (home equity line of credit) lets you borrow against the value of your home, a bit like a credit card that uses your house as backup. Almost all HELOCs are tied to prime, so when prime goes up, your HELOC rate goes up right away.

Many people only pay the interest on their HELOC each month. That means the balance never shrinks on its own, and every rate increase makes the monthly cost bigger.

Other loans to check:

• Personal lines of credit are usually tied to prime too, so they will cost more.
• Variable-rate car loans or student lines of credit may also rise.
• Credit cards are not directly tied to prime, but their rates are already very high. Paying them down is almost always a smart move.
• Savings accounts and GICs are the bright side. When rates go up, savers often earn a little more.

What does this mean in London, Middlesex and Elgin?

Every neighbourhood is a little different, but here is how a rate increase tends to play out in our area:

• Buyers can borrow a bit less. Lenders check whether you could still afford your payments if rates were higher. This is called the stress test. When rates rise, the stress-test rate rises too, so the same income qualifies for a slightly smaller mortgage.
• Some buyers may pause. When borrowing costs rise, some people wait to see what happens. That can mean fewer competing offers and more time to decide, which can help careful buyers.
• Renewals are the bigger story. For many London-area owners, the renewal on a mortgage signed in 2021 or 2022 matters more than this one increase.
• City versus town trade-offs. Homes in smaller towns and rural parts of Middlesex and Elgin can cost less than similar homes in London, which can help when rates are higher. But be sure to count the full cost, including commuting, and for rural homes, the upkeep of a well and septic system.
• Investors feel it in the numbers. If you own or are buying a rental, a higher rate can shrink your monthly cash flow. It is worth rechecking the math before you buy or renew.

No one knows exactly how prices will respond. A rate increase does not mean prices will drop, and it does not mean they will stay flat. It is one piece of a bigger picture that includes jobs, how many homes are for sale and how many people are moving to the area.

Options for buyers

If you are planning to buy, a rate increase does not have to stop you. It just means planning more carefully.

1. Get pre-approved with a rate hold. Many lenders will hold a rate for you for about 90 to 120 days. If rates go up while you shop, you keep the lower rate. If they go down, a good lender will usually give you the lower one. A pre-approval also shows you how much you can borrow today, not six months ago.
2. Pick a comfortable payment, not just a maximum price. The bank may approve you for more than you want to spend. Choose a monthly payment that still leaves room for savings, repairs and life.
3. Understand fixed versus variable. A fixed rate gives you a steady payment and peace of mind. A variable rate can cost less if rates fall later, but it moves up when rates rise. There is no right answer for everyone. It depends on your budget and how much change you are comfortable with.
4. Think about the term length. Shorter terms (like three years) let you renew sooner, which helps if you expect rates to come down. Longer terms (like five years) give you more certainty. Ask a mortgage professional to show you both.
5. Use the first-time buyer programs. Tools like the First Home Savings Account, the Home Buyers' Plan and Ontario's land transfer tax refund can lower your costs and help soften higher rates.
6. Use your conditions. In Ontario, an offer can include a financing condition. It gives you time to confirm your mortgage before you are locked in. In a calmer market, sellers may be more open to it.

Options for homeowners

If you already own a home, here are the main choices to know about. Each one has trade-offs, so it helps to talk them through with your lender or a mortgage professional.

If you have a variable rate:

• Stay where you are. If your budget can handle the change, staying variable may still make sense, especially if rates come back down later.
• Lock into a fixed rate. Most lenders let you switch to a fixed rate, often without a penalty. You get a steady payment, but the fixed rate offered may be higher than your current rate.
• Raise your payment a little. If you have a fixed-payment variable mortgage, adding even a small amount each month can keep your payoff plan on track and keep you well away from the trigger rate.

If your renewal is coming up:

• Start early. Many lenders will let you lock in a renewal rate about four months before your term ends. That protects you if rates climb further.
• Shop around. You do not have to stay with your current lender. Comparing offers can save real money. Since November 2024, if your mortgage is insured, switching lenders at renewal usually does not require passing the stress test again.
• Ask about "blend and extend." Some lenders can mix your current rate with a new one and extend your term. It can soften the jump, but read the details carefully.

For everyone:

• Make extra payments if you can. Most mortgages let you pay down some extra each year without a penalty. Every dollar you pay down is a dollar that no longer collects interest.
• Pay down your HELOC and high-interest debt first. These usually rise fastest and cost the most.
• Look at a longer amortization only with care. Stretching your mortgage over more years can lower your payment, but you will pay more interest overall.
• Talk to your lender early if money is tight. Lenders would much rather help you make a plan before a missed payment than after. Many have options for people who are struggling.

What to do when rates go up: a simple checklist

When you hear that the Bank of Canada has raised rates, here is a calm, step-by-step plan:

1. Don't panic. One increase is not a crisis. Big decisions made in a rush are usually the most expensive ones.
2. Find out what kind of loans you have. Fixed or variable? Adjustable payment or fixed payment? Any HELOC or line of credit?
3. Check your renewal date. If it is within the next year, put a reminder in your calendar to start shopping about four months ahead.
4. Do the math. Ask your lender, or use an online calculator, to see what your new payment will be.
5. Look at your budget. Find where a little extra could come from, and build a small cushion for surprises.
6. Pay down the most expensive debt first. Usually that is credit cards, then lines of credit and HELOCs.
7. Talk to a professional before you change anything. A mortgage professional can compare your options, and a financial advisor can look at the bigger picture.
8. Keep the long view. Rates go up and down over time. Your home is a long-term decision, so make choices you will still feel good about in five or ten years.

How I can help

Interest rates are only one part of a home decision, but they touch everything: what you can afford, when to buy or sell and how to plan for renewal. As a licensed real estate broker serving London, Middlesex County and Elgin County, I help buyers and homeowners look at the full picture before they make a move.

I can help you:

• Understand what today's rates mean for your budget and your plans
• Connect with trusted local mortgage professionals who can compare your options
• Weigh the trade-offs between buying now or waiting, and between city, town and rural homes
• Plan a sale or purchase around your renewal date

If you have questions about what this rate change means for you, I would be glad to talk it through. There is no cost and no obligation.

Disclaimer

This article is for general information only and reflects information available on October 29, 2026. Interest rates, lender policies and government rules change often. The payment examples are simplified illustrations, not quotes, and your actual numbers will depend on your lender, your mortgage terms and your situation. Nothing in this article is mortgage, legal, tax or financial advice. Before making any decision, please speak with a qualified mortgage professional, your lender and a financial advisor or lawyer as needed. The Realty Firm Inc. is a real estate brokerage registered with the Real Estate Council of Ontario (RECO).

Sources

• Bank of Canada: Bank of Canada raises the policy rate by 25 basis points to 2½% (October 28, 2026)
• nesto: Bank of Canada raises policy rate to 2.50%
• rates.ca: Energy inflation drives Bank of Canada hike to 2.50%
• Ratehub: Prime rate in Canada