1981: the year a mortgage cost 21.75%

Between August 12 and October 7, 1981, the posted rate for a 5-year fixed mortgage peaked at 21.75%, according to NerdWallet Canada¹. At the same time, the big banks’ prime rate, meaning their reference rate, which is used to set lines of credit and variable-rate mortgages, reached 22.75%². The Bank of Canada’s rate, the one that guides every other rate in the country, also went above the 20% mark³.

And it wasn’t a one-day peak. Fixed 5-year rates stayed above 15% for about two years, from the fall of 1980 to the fall of 1982, as The Globe and Mail pointed out⁴. It took until 1983 to see them fall back to roughly half of their peak.

1979

The main cause comes down to one word: inflation, the general rise in prices. At the end of the 1970s, the Iranian revolution made oil production plunge. Energy prices soared, pulling up the prices of almost everything else. In Canada, as in the other major industrialized countries, inflation went above 12% in 1981: what cost $100 at the start of the year cost $112 a year later.

To break this spiral, the Bank of Canada, like the U.S. Federal Reserve (the central bank of the United States), raised its rates sharply. The idea: when borrowing costs a lot, people and businesses spend less, and prices eventually calm down. The remedy works, but it is harsh: the country plunged into the 1981-1982 recession (a period when the economy shrinks), unemployment climbed, and many households struggled to keep up with their payments.

Take a simple example: a $100,000 mortgage repaid over 25 years.

• At 21.75%, the monthly payment comes to about $1,745. In the first month, about $1,735 goes to interest. Only about ten dollars is left to repay the principal, meaning the amount you actually borrowed: less than 1% of the payment.
• At 4.5% (a rate used here for illustration only), the same loan costs about $553 a month.

In other words, in 1981 the same loan cost more than three times as much every month. For many families, the shock didn’t come from the purchase but from the renewal: the mortgage contract ends at the wrong time, the new rate is much higher, and the payment jumps by several hundred dollars for the same debt.

Illustrative calculations, using the interest calculation method used for mortgages in Canada. They are not an offer of financing.

In the fall of 2026, the Bank of Canada’s policy rate⁵ stands at 2.25%. It is the rate the Bank sets to influence all the others: those of banks, lines of credit and mortgages. We are very far from 1981. Mortgage rates of 21% seem to belong to another century.

Yet those rates haven’t completely disappeared: they have moved. According to Protégez-vous⁶, the going rate on a credit card is between 19% and 21%. In other words, an unpaid credit card balance today costs about what a mortgage cost in 1981.

On a balance of $10,000 at 19.99%, that comes to about $167 in interest every month, before you’ve repaid a dollar of the debt.

1. Prepare for your renewal ahead of time. Nobody can predict where rates will be in five years. It’s prudent to check that your budget could handle a higher payment. That is, in fact, the spirit of the “stress test” required of borrowers today: the lender checks that you could still pay if your rate were higher. Our article on how to determine your borrowing capacity can help you run that calculation.

2. Keep an eye on high-rate debts. In 1981, it was the mortgage. Today, it’s mostly cards and some personal loans. Listing your debts with their real rates is often the first step toward a lighter budget.

3. Look at all the options, with their advantages and their costs. For some homeowners, bringing costly debts into their mortgage (that is, increasing the mortgage loan to repay their other debts and having just one payment, at a lower rate) can reduce monthly payments. But stretching out the repayment period can also increase the total interest paid: each situation has to be looked at case by case. To learn more, see our page on debt consolidation.