Mortgage rates and the central bank policy rate are often discussed as if they were the same number. They are connected, but a mortgage is priced from a different set of inputs.
The policy rate prices overnight money
A central bank sets the rate at which banks lend to each other for very short periods. It is the price of money for a day, not for decades.
A mortgage commits funds for many years, so its cost depends on expectations about rates across that whole horizon rather than on today's overnight rate.
This is why announcements sometimes produce no movement in mortgage pricing. If the change was already expected, it was priced into longer-term rates well before the decision.
Lenders fund from several sources
Mortgage lending is funded through deposits, wholesale borrowing and, in some markets, by selling loans onward to investors. Each source carries its own cost.
Deposit costs respond slowly to policy changes, while wholesale funding reprices quickly. A lender's blended cost therefore moves at a pace determined by its own mix.
Competition for deposits can raise funding costs even when policy rates are flat, and that pressure passes into lending rates.
Risk premiums are layered on top
Above funding cost sit charges for credit risk, expected losses, capital held against the loan and the lender's margin. These are set by the lender rather than by policy.
Borrower-specific factors then adjust the price further. A larger deposit, a stronger credit file or a shorter term generally attract a lower rate on the same day.
Because these layers move independently, the gap between the policy rate and an advertised mortgage rate is not fixed.
Fixed rates price expectations, not the present
A fixed rate is the lender's price for accepting rate risk for the agreed period. It reflects where markets expect rates to average over that period.
This is why fixed rates can fall while the policy rate is still rising, or rise in advance of any decision. They are forward-looking instruments.
Variable rates track a reference rate more directly, but even they usually carry a spread the lender can revise under the terms of the contract.
What this means for reading rate news
A policy decision is one input among several, and often the least surprising one. Movements in longer-term funding markets frequently matter more to what a borrower is quoted.
Comparing a headline policy rate to a mortgage offer will always show a gap, and the size of that gap says more about risk and funding than about generosity.
Terms and availability differ by market and change continually, so any specific product decision needs current local information rather than a general rule.