January 28 Rate Decision Could Reshape Canada’s Housing Market—Here’s What’s at Stake

On January 28, 2026, the Bank of Canada will make its first interest rate decision of the year—a decision being watched closely by homeowners, renters, investors, and economists alike. After several years of aggressive rate hikes aimed at slowing inflation, financial markets are now focused on a pivotal question: Will interest rates finally come down? Or will the central bank hold firm for longer?

Not Just Policy—Real Money for Real People

For many Canadians, the upcoming rate announcement isn’t just economic jargon. A small change in interest rates—even 0.25 percentage points—can lead to a $100 shift in monthly mortgage payments. That amount can tip the balance of a family’s budget, influencing spending, saving, and housing decisions across the country.

Setting the Stage for January 28: Where Do Rates Stand?

Canada’s High-Interest Environment in 2026

As 2026 begins, Canada’s policy interest rate remains at a multi-decade high, aimed at cooling inflation and curbing excessive demand. This environment has kept mortgage, loan, and credit costs elevated, causing pressure for consumers and businesses alike.

Five-year fixed-rate mortgages remain near peak levels, while variable-rate borrowers have already felt the pinch of multiple rate hikes. Inflation has cooled but still remains just above the Bank of Canada’s 2% target, keeping policymakers cautious.

Why the First Rate Decision of the Year Matters

The Tone-Setter for the Entire Year

The January interest rate decision sets the tone for the rest of 2026. It sends a powerful signal to markets, banks, and consumers: Will rates go down soon, or will the current pressure remain?

• A rate cut would mark a shift toward easing.
• A rate hold signals ongoing caution.
• A surprise hike, though unlikely, would suggest renewed concern over inflation.

For mortgage-holders and homebuyers, the decision’s impact is immediate and tangible.

Understanding the $100 Monthly Mortgage Shift

Small Rate Changes Have Big Effects

A 0.25% rate change on a $500,000 mortgage can cause monthly payments to rise or fall by $75 to $125, depending on the loan structure. That’s why a seemingly small change can translate into a $100 monthly shift for many Canadians.

Who Is Most Affected?

• Variable-rate borrowers feel the impact almost immediately.
• Fixed-rate borrowers renewing in 2026 may face significantly different terms depending on the rate decision.
• First-time buyers could see their purchasing power rise or fall with every movement in interest rates.

Inflation and the Bank’s Balancing Act

Where Inflation Stands Now

By the end of 2025, headline inflation had cooled to just over 2%, close to the central bank’s target. However, shelter, food, and service costs remained elevated. Wage growth was easing but still inconsistent with stable inflation.

Cutting Too Soon Comes with Risk

If the Bank cuts rates too quickly, demand could rebound, home prices might rise again, and inflation could reignite. Policymakers are cautious not to repeat previous mistakes, where early easing led to renewed price pressures.

What a $100 Mortgage Shift Means for Homeowners

Budget Pressure or Financial Relief

A $100 change in monthly mortgage payments equals $1,200 per year—a meaningful difference for families. For some, that means less discretionary spending and more financial stress. For others, especially if rates fall, it could bring much-needed breathing room.

Renewals and Refinancing in 2026

Hundreds of thousands of Canadians will renew mortgages this year, many at much higher rates than before. A decision to cut could encourage some to wait, while others may lock in to avoid further risk. These decisions will also influence bank earnings and lending activity.

The Housing Market Implications

Home Prices and Buyer Demand

Interest rates are the single biggest driver of housing demand. Lower rates boost affordability, fuel bidding wars, and can reignite price growth. If the Bank cuts in January, expect a pickup in market activity, especially in major urban areas.

Conversely, if rates are held, the current slowdown may continue.

Housing Starts and Supply

Developers respond quickly to borrowing costs. Lower rates can trigger new construction, helping alleviate Canada’s chronic housing shortage. This means the January rate call has long-term implications for supply, not just prices.

Effects on Renters and Investors

Renters Feel the Ripple Effect

Landlords with variable-rate mortgages often pass rising costs to renters. If interest rates remain high, rents may continue rising. A modest rate cut may slow this trend—but structural supply issues keep rental markets tight.

Investors Watch Closely

Investors tend to enter markets more aggressively when rates fall. A January cut could lead to renewed investor activity, pushing up home prices in hot markets.

The central bank must weigh these impacts when deciding on rates.

Financial Market and Currency Impact

Interest Rates and the Canadian Dollar

Interest rate decisions affect the Canadian dollar. A rate cut typically weakens the currency, making imports more expensive but helping exporters. If the Bank holds or hikes, the loonie could strengthen.

Stock Markets and Investor Sentiment

Lower rates often boost equity markets and lift consumer confidence, while higher rates do the opposite. The January rate decision will likely move markets immediately, affecting everything from stocks to bond yields.

What Experts and Markets Expect

Most Economists Expect a Hold

The consensus among economists is that the Bank of Canada will hold rates steady on January 28 but may hint at cuts later in 2026. This gives the Bank more time to assess inflation trends and wage growth.

Markets have priced in cuts starting in mid-2026, but nothing is certain.

Beware of Surprises

Central banks sometimes surprise markets to reinforce credibility. An unexpected move—cut or hike—would send shockwaves through mortgage rates, currencies, and stock markets.

How Canadians Can Prepare for the Decision

Budget Stress Testing

Homeowners should prepare their budgets for a possible $100 monthly shift—in either direction. Building an emergency fund and avoiding overextension remain critical steps in uncertain times.

Fixed vs. Variable: The Ongoing Debate

Choosing between fixed and variable mortgage rates is more important than ever. Fixed rates offer certainty, while variable rates offer flexibility but carry risk. The upcoming rate decision can help guide this choice, and professional advice is recommended.

Broader Economic Impact of the Rate Decision

Consumer Spending and Economic Growth

Interest rates shape how much Canadians spend. If rates fall, consumers spend more. If they stay high, spending slows. This will affect retail, tourism, and services across Canada in 2026.

Business Investment and Employment

Lower borrowing costs can boost hiring and investment, while higher rates may cause businesses to hold back. The Bank’s decision will ripple through the employment market and GDP.

Long-Term Outlook: Will Rates Keep Falling?

A Gradual Decline, Not a Sudden Drop

Most experts agree: any easing cycle will be slow and careful. Mortgage rates may trend down, but they are unlikely to return to pre-pandemic lows.

This new reality is changing how Canadians borrow, buy homes, and plan financially.

What It Means for First-Time Buyers

Entry Remains Difficult

Higher interest rates reduce how much first-time buyers can borrow. Even if rates are cut in January, the improvement in affordability will be modest. Supply remains tight, and home prices are still high in many cities.

Timing the Market Isn’t Easy

Trying to wait for the perfect rate cut is risky. Buyers should instead focus on long-term affordability, job security, and budgeting.

Regional Differences in Rate Impact

Big Cities See Bigger Effects

Toronto, Vancouver, and other high-cost markets are more sensitive to rate changes. Smaller cities may see milder shifts, though rising or falling payments matter everywhere.

Northern and Rural Communities

In lower-priced areas, a $100 change represents a larger share of household income, highlighting uneven impacts across Canada.

Policy Language to Watch on January 28

The Statement’s Tone Will Matter

The exact wording in the Bank’s statement will be key. Analysts will parse every sentence for hints about future cuts or ongoing caution. Sometimes, the tone matters more than the decision itself.

Future Decisions Will Be Data-Driven

The Bank of Canada has stressed that future moves depend on inflation data, wage growth, and housing trends. January’s call is just the first chapter in a larger 2026 policy story.