Choosing between fixed and variable mortgages

One of the biggest financial decisions Canadians face when buying a home or renewing a mortgage is choosing between a fixed-rate and a variable-rate mortgage. Variable-rate mortgages are currently more affordable than fixed-rate options. According to Statistics Canada, in April 2026, the average insured variable mortgage rate was about 3.79%, compared with 4.04% for five-year fixed mortgages. While many borrowers are naturally drawn to the lowest interest rate, recent events have shown that the cheapest option isn’t always the best.

When the Bank of Canada aggressively raised interest rates in 2022 and 2023, many homeowners with variable-rate mortgages saw their payments climb suddenly, sometimes by hundreds of dollars. Some even reached a point where their payments didn’t cover the interest due, causing their mortgage balance to grow (negative amortization). These experiences left a lasting impression.

The recent plateau in demand doesn’t mean Canadians have given up on variable mortgages. Instead, it suggests that the first wave of rate-sensitive borrowers has already acted. Those still waiting are considering not only whether variable rates are lower today, but whether they are worth the risk tomorrow. Mortgage choices are shaped as much by emotion as by math. While variable rates have historically cost less, recent history reminds us that rates can rise just as quickly as they fall.

For many, the peace of mind that comes with a fixed rate now outweighs the potential to save with a variable mortgage. While no one can predict where interest rates will go, many economists suggest the Bank of Canada’s rate-cutting cycle may soon be over.

Today’s economic climate is defined by persistent inflation, global uncertainty, and fluctuating energy prices, all of which make future interest rate changes difficult to predict. For many homeowners, the security of budgeting with confidence (avoiding sudden spikes in mortgage payments) is invaluable, even if it means paying a higher fixed rate. Inflation, which drives up the cost of goods and services, often prompts central banks to raise interest rates to slow spending and bring prices back under control.

With the high cost of living putting pressure on household budgets, many Canadians are prioritizing stability in their financial choices. Those on a tight budget may benefit from the predictability of locking in a three- or five-year fixed mortgage. Meanwhile, homeowners with smaller mortgages and strong finances might prefer a variable-rate mortgage that allows flexibility to lock in a fixed rate if interest rates begin to climb.

Interest rates fell sharply during the pandemic as central banks worked to support the economy. After the crisis, rates rose quickly to rein in an overheated market. At today’s levels, however, another drastic spike in interest rates is unlikely.

Variable-rate mortgages are best suited for borrowers with stable income, strong financial flexibility, and a high tolerance for uncertainty. These mortgages often carry lower penalties for early termination, making them ideal for those who may sell or refinance before their term ends. If you plan to sell within the next year, choose variable; if you plan to port your mortgage, opt for the three-year fixed rate.

Most lenders charge a three-month interest penalty for breaking a mortgage, and with variable rates, this penalty is typically lower. The same applies if you exceed your prepayment privilege; lenders will charge the equivalent of three months’ interest on the excess amount. This makes variable-rate options more cost-effective in these scenarios.

Ultimately, the best mortgage is the one that aligns with your financial situation, long-term goals, and risk tolerance, not just the lowest rate available. A good mortgage should help you build wealth and provide peace of mind, regardless of what the market does next.