Fixed vs. variable rate: which one makes sense in 2026?

It is the question I get more than any other. And it makes sense, because the right answer in 2022 was completely different from the right answer today.

In 2022, when the Bank of Canada was raising rates aggressively, anyone with a variable mortgage watched their payments climb hundreds of dollars a month. In 2024 and 2025, when the Bank cut from 5% down to 2.25%, people locked into high fixed rates ended up paying more than they needed to.

The market shifts. The strategy has to shift with it.

Here is how we think through this decision with clients and what actually determines which product makes sense for your situation.

How each one works, without the jargon

• A fixed rate: Locks in your payment for the term you choose, typically 1, 2, 3, or 5 years. What you sign is what you pay, regardless of what the Bank of Canada does during that time. That certainty comes at a price: fixed rates usually start higher than variable.

• A variable rate: Moves up and down with your bank's prime rate, which closely follows the Bank of Canada's decisions. If the Bank cuts, your payments go down. If it raises, they go up. You take on short-term uncertainty in exchange for access to generally lower rates at the start.

Neither is better in the abstract. It depends on when you are signing, how long until your maturity date, and what you expect from the market.

What the market looks like right now

The Bank of Canada is sitting at 2.25% after coming down from 5%. It paused cuts in June because of uncertainty around U.S. tariffs.

That creates an interesting situation. Variable rates have already come down a lot. Fixed rates have too, but they follow 5-year Government of Canada bonds, which already priced in most of the earlier cuts. So the spread between fixed and variable today is not as wide as it was in 2023.

That changes the math. Tthere are three realistic paths from here: 1. If the Bank cuts again: Variable wins. 2. If it holds for several months: The two products end up at similar costs. 3. If inflation rebounds and the Bank raises: Fixed wins, but most analysts consider that the least likely scenario right now.

Nobody knows which of those plays out. The strategy has to work across more than one of them.

How we work through this with clients

When someone asks me "fixed or variable?", the first thing I ask is how much it bothers them if their payment goes up.

That is not a rhetorical question. It is the most important one. A variable rate can save you money over time, but if every Bank of Canada announcement sends you into a spiral, the savings do not outweigh what that costs you mentally. Anxious people make bad financial decisions at the worst possible moment.

After that, we look at when the mortgage matures. Renewing in six months is completely different from renewing in two years. Lenders are offering different things depending on the term, and right now there are 1 and 2-year products that make more sense than 5-year ones for certain situations.

We also check prepayment penalties on the current mortgage. Breaking your mortgage early to get a better rate can make sense, or it can cost more than you save. That number has to be calculated before moving anything.

And then we compare the full market, not just the big banks. Credit unions and B lenders sometimes have products the major banks would not offer you, even if you qualify perfectly at the A level.

When each option makes more sense today

Fixed makes more sense if: - Your mortgage is renewing soon and you want to know exactly what you are paying for the next few years. - Your monthly budget is tight and you have no room to absorb a payment increase. - The variability just costs you too much peace of mind.

Variable makes more sense if: - You have a financial cushion that can handle a temporary payment increase. - You plan to sell or refinance before the end of the term, since variable penalties are usually lower. - You believe, as most analysts currently do, that the Bank of Canada is more likely to cut than raise over the next 12 months.

One product a lot of people overlook: short-term fixed rates. A 1 or 2-year fixed gives you certainty in the near term without locking you in for 5 years if the market shifts. Worth calculating.

The most common mistake I see

People arrive with the decision already made. "I want fixed because variable is too risky." Or the reverse: "I want variable because rates are going to drop."

Neither of those is a strategy. They are instincts.

A strategy comes from calculating what each option costs in the worst-case scenario, what you save in the best case, and deciding which range of outcomes you can actually live with. That looks different for every person.

Want to know what makes sense for your specific mortgage?

Start with the free assessment at gabrielgetsyouhome.com/renovacion. In about three minutes you can see where you stand and which options fit your current situation.

If you would rather talk through it directly, book a no-cost consultation at Calendly. We go through the numbers together.

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Frequently asked questions

Are variable rates in Canada always lower than fixed? They usually start lower, but not always. During periods of uncertainty, some lenders offer very competitive short fixed terms. The comparison has to be done at the time of renewal, not based on what the market looked like a year ago.

Can I switch from variable to fixed mid-term? Yes, most lenders allow it. But there may be a fee or conditions attached. You need to review your contract before converting.

How do I find out what my prepayment penalty would be? The big banks calculate penalties using something called the Interest Rate Differential, which can be much higher than you would expect. Monoline lenders and some credit unions use three months of interest instead, which is more predictable. Always ask for that number in writing before making any decision.

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Gabriel Pages, Mortgage Agent Level 1 | Vine Group Mortgage Brokerage Lic. #13511 *This content is for informational purposes only and does not constitute personalized mortgage advice. Rates and market conditions change frequently. For a recommendation based on your specific situation, book a consultation.