Bank of Canada Rate Decisions 2023: The Peak and the Pause

If 2022 was the year rates went up, 2023 was the year Canadians felt it. The Bank of Canada started the year with one more hike, paused, then surprised markets with two additional increases that pushed the overnight rate to 5.00%. The full weight of nearly two years of tightening landed squarely on borrowers, and many mortgages originated at pandemic-era lows were heading toward renewal at much higher rates. The shock was not theoretical anymore. It was showing up in monthly bank statements across Ontario.3

2023 in Three Acts: Hike, Pause, Surprise

The year unfolded in a way almost nobody predicted in January.

Act 1 (January): The Bank delivered one final 25-basis-point hike to 4.50% and announced a "conditional pause," meaning it would stop hiking as long as the data cooperated.1

Act 2 (March and April): Two consecutive holds at 4.50%, with no rate announcement in May.5

Act 3 (June through July): The economy refused to cooperate. The Bank described the economy as stronger than expected, consumer spending as surprisingly strong, and underlying inflation pressures as more persistent than anticipated.3 The Bank broke its pause with a surprise hike in June, followed by another in July, bringing the overnight rate to 5.00%, a cumulative 475 basis points of tightening since March 2022.23 The message: the Bank remained resolute in its commitment to restoring price stability.

Mortgage Rates at the Peak

After the July hike, banks' prime rates moved up with the overnight rate, and variable-rate mortgages moved well above the levels most borrowers had budgeted for when they signed their mortgage documents.

In its December 6 announcement, the Bank of Canada noted that long-term interest rates were "unwinding some of the sharp increases seen earlier in the autumn," which eased some of the pressure on fixed mortgage rates even as the overnight rate held at 5.00%.4

The Renewal Wave Hits

CMHC projected that about 2.2 million mortgages, 45% of all outstanding mortgages in Canada, would come up for renewal in 2024 and 2025, many of them originated when rates were near historic lows. CMHC estimated the typical payment increase at renewal in the 30% to 40% range.7

Statistics Canada reported that mortgage interest cost was among the largest contributors to the year-over-year increase in CPI in October 2023.6 It was a painful irony that the Bank acknowledged but could not easily resolve: the rate hikes meant to cool inflation were themselves showing up in the inflation numbers through higher shelter costs.

The Canadian Mortgage Charter

In the 2023 Fall Economic Statement, the federal government announced the Canadian Mortgage Charter, which the Department of Finance described as detailing the relief Canadians can expect from their banks if they are in financial difficulty.9 It was a meaningful acknowledgment that the renewal wave was creating real hardship.

Update: a separate change to renewals came later. On December 15, 2024, as part of a broader package of mortgage reforms that also raised the insured mortgage price cap and expanded 30-year amortizations for some buyers, insured mortgage holders became able to switch lenders at renewal without another mortgage stress test.10

The Renewal Reality for an Ontario Family

Illustrative example: the household below is a composite, not an actual client, and the rates used are illustrative, not a current quote. OAC. Rates subject to change. Conditions apply.

Consider a two-income household in Oshawa that purchased in 2019 for $620,000 with 20% down, locking into a 5-year fixed rate of 2.89% on a $496,000 mortgage with a 25-year amortization. Their monthly payment has been approximately $2,325, comfortable on a combined income of $125,000.

Their renewal came due in early 2024. Based on a renewal rate of 5.34% and a remaining balance of approximately $423,000 with 20 years left on their amortization, their new payment would be approximately $2,860, an increase of about $535 per month, or roughly $6,400 a year. Choosing a variable rate of 6.01% instead would put the payment closer to $3,015 a month.

This family had to pass the mortgage stress test when they qualified in 2019. The renewal payment is still affordable on their income, but it is tight: the annual vacation, the kids' hockey registration, and the car payment all get squeezed.

A broker's role here is to compare rates across multiple lenders, not just the renewal offer from the existing bank. Even a 0.25% improvement at renewal, from 5.34% to 5.09%, would save this family approximately $700 per year. Comparing lenders at renewal can turn up a lower rate than the one in the bank's own renewal letter.

Heading into 2024: Cuts or More of the Same?

As December 2023 closed, the Bank of Canada had held the overnight rate at 5.00% since its July hike.

The data supported cautious optimism. CPI fell to 3.1% in October, down from 3.8% in September.6 Real GDP contracted at a 1.1% annualized rate in the third quarter.4 The lagged effects of 475 basis points of tightening since March 2022 were clearly materializing.5

But the Bank had been burned by premature optimism before: the pause in early 2023 was followed by surprise hikes when inflation proved stickier than expected. In its December 6 announcement, the Bank said it wanted to see further and sustained easing in core inflation and remained prepared to raise the policy rate further if needed.4

The following is a composite of conversations with several clients, not a transcript of any one meeting. The conversation we had most often went something like this: our advice to Ontario borrowers was the same all year, plan for what you know, not what you hope. You know your current rate, your renewal date, and your remaining balance. A broker can show you what your payment looks like across a range of possible renewal rates. Build your budget around the realistic range, not around a hopeful scenario. If cuts come sooner and faster than expected, that is a bonus. But do not count on it.

The biggest question for 2024 was not just whether cuts would come, but how quickly and how far. If the Bank cut 75 to 100 basis points over the course of the year, variable-rate borrowers would see meaningful relief. If the Bank cut 25 basis points and paused again, the impact would be minimal. And if inflation rebounded, cuts could be delayed entirely.

For borrowers renewing in the first half of 2024, the practical advice was the same regardless of where rates went: start the process four months before your maturity date, get rate quotes from a broker, and do not sign the first offer your bank sends.