Good morning! As Canadians brace for yet another rate hike when the Bank of Canada meets again in December, I've seen some comments suggesting that those with adjustable or variable rate mortgages who are especially feeling the financial strain "should have known better". To me that lacks a full understanding of the events that got us to this point.

A brief history lesson ⬇

July 2020
BoC Governor Tiff Macklem makes the following statement to Canadians: "If you’ve got a mortgage of if you’re considering making a major purchase, or you’re a business and you’re considering making an investment, you can be confident rates will be low for a long time". They maintain that inflation is "transitory".

June 2021
OSFI and the Department of Finance announce changes to the B20 or "Stress Test" rule for all mortgages. Borrowers now need to qualify at the higher of either 5.25% or the contract rate +2%

June of 2021
The spread between the average five year fixed rates and their variable/adjustable counter parts reaches 93bps, a difference not seen since 2011. That equates to a difference of around $175/month on a $400K mortgage with a 25 year AM. The BoC is still insisting that inflation is transitory and keeps Prime unchanged at 0.25%.

June 2022
As inflation rages, many fixed rates exceed 5.25% meaning that borrows must qualify at the contract rate +2%. Variable and adjustable rates remain lower such that a 5.25% stress test rate can be used. The ability to have a little more purchasing power steers some borrows towards a variable/adjustable rate especially those looking to get into the market or make a move.

July 2022
The BoC appears to have a case of amnesia regarding their statements from 2020 and increases the overnight rate by a massive 1%

November 2022
The BoC has taken the overnight rate from 0.25% to 3.75% in less than a year with an expected 0.25-0.50% increase in December causing roughly 50% of variable rate mortgage holders to hit their trigger rate.

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