Mortgage forecasts would be a lot easier to plan around if the banks agreed with each other. But, of course, they don’t.
Royal Bank‘s September outlook expects the Bank of Canada to start raising rates again later in 2027, with higher energy prices creating a chance that hikes arrive sooner. Meanwhile, TD’s September forecast, keeps the policy rate at 2.25% through 2027.
So if you’re renewing next year, which one do you believe? To be honest, I wouldn’t build the household budget around either.
Forecasts are useful for thinking through possibilities. They’re not mortgage quotes, and economists don’t get to set your payment. I’d use the disagreement as a stress test instead. What happens if your renewal rate comes in one percentage point higher than you hoped? That’s a question you can answer today.
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Translate the forecast into dollars
Suppose you’ll be renewing a $400,000 mortgage with 20 years remaining. Here’s what the monthly payment looks like at three illustrative fixed rates.
| Illustrated renewal rate | Monthly payment |
|---|---|
| 4.00% | $2,416.99 |
| 5.00% | $2,628.50 |
| 6.00% | $2,848.75 |
Going from 4% to 5% adds about $212 a month, or roughly $2,538 a year. At 6%, you’re paying about $432 more every month than you would at 4%. That’s no longer an abstract debate between bank economists. That’s groceries, childcare, travel or a decent chunk of retirement savings.
So I’d rehearse the higher payment before the renewal arrives. Try moving an extra $212 into savings each month while keeping your current mortgage payment unchanged. After a year, you’d have roughly $2,540 before interest. More importantly, you’ll know whether that payment actually fits your life.
Fixed and variable
The Bank of Canada’s overnight rate and your five-year fixed mortgage don’t move together perfectly, of course. Bond markets can price in expected rate hikes months before the central bank actually raises anything. Fixed mortgage rates also depend on lender funding costs, competition and margins.
So even today’s disagreement between RBC and TD can start affecting fixed-rate pricing before 2027 gets here. Variable mortgages work differently. They generally move more closely with lenders’ prime rates, which means future Bank of Canada decisions can reach your payment more directly.
That trade-off is why I wouldn’t choose fixed or variable based on a forecast alone. I’d look at how much payment volatility the household can handle, whether there’s a chance of moving, and what it would cost to get out of the mortgage early. Just remember what it’s doing behind the scenes, which is stretching the debt over a longer period and increasing total interest.
A bank stock, not a hedge
It can be tempting to think, “If rates rise, maybe I’ll just own the banks.” Unfortunately, investing rarely hands out gifts that neatly. National Bank of Canada (TSX: NA) is a good example. Its personal and commercial lending business grew in the third quarter, yet the net interest margin in that segment fell to 2.19% from 2.25% a year earlier.
In other words, charging higher rates doesn’t automatically mean a bank makes more money on every dollar. Deposit costs, competition and the mix of loans all matter too. National Bank still reported adjusted quarterly earnings per share (EPS) of $3.39 and maintained a 13.5% Common Equity Tier 1 capital ratio.
Its acquisition of Canadian Western Bank also gives it more exposure to Western Canada, along with the less exciting job of integrating another bank. Those are the things I’d be looking at before buying stocks in Canada, rather than trying to use National Bank shares as insurance against a higher mortgage payment. A weaker economy could hurt both at once. Household income gets squeezed while bank shares fall on rising credit concerns, so not much of a hedge.
Bottom line
Money you may need for a 2027 renewal belongs somewhere accessible, whether that’s cash, a short-term guaranteed investment certificate (GIC) or suitable savings inside a tax-free savings account. National Bank shares can stay in the long-term portfolio.
RBC and TD may disagree about where rates are heading. Your budget doesn’t have to. Run the higher-payment scenario now. Save the difference if you can. Figure out whether the mortgage is comfortable before renewal day decides for you.
If rates stay low, you’ve built extra savings. If they rise, your budget has already met the new payment.
