Fixed vs variable mortgage rates: which is right for you in 2026?

How fixed and variable rates are priced

Fixed and variable rates are priced in different ways, and they often move in different directions on the same day.

Variable rates follow prime. Each lender publishes a prime rate, and prime tracks the Bank of Canada's policy rate. It has historically sat about 2.2 percentage points above it, and it moves within a day or two of an announcement. The Bank has 8 scheduled announcements a year, and prime doesn't move between them.

Fixed rates follow the bond market, specifically the 5-year Government of Canada bond yield, plus a spread the lender adds for its own risk and margin. Bond yields trade every day and react to what the market expects, not to announcements. That's why a fixed rate can move the week before a Bank of Canada decision and then stay put after it.

This has 2 practical effects.

Waiting for a rate cut to get a better fixed rate usually doesn't work. By the time the cut is announced, the bond market has been pricing it in for weeks, and fixed rates have already adjusted. Waiting for a cut does lower a variable rate, because your rate falls when prime falls. But you don't need to wait, since you'd already be in the mortgage when it happens.

What you lock in with a variable rate

A variable rate is a formula: prime minus a discount. The discount is the part you negotiate.

If you sign at prime minus 0.90%, you keep that 0.90% discount for the whole term, whatever the lender offers new customers later. When prime moves, your rate moves with it, and your discount stays the same.

This matters when you compare offers. Two variable mortgages with the same effective rate today can be different products. Prime minus 0.90% and prime minus 0.25% can land on the same rate this morning, but they'll stay apart for good once the Bank of Canada moves. That's why every variable rate on this site shows both the effective rate and the formula.

It also means you need to negotiate the discount before the mortgage funds. After that, there's nothing left to negotiate. The gap between a branch's first variable offer and the deepest broker-channel discount from the same lender is often a quarter point or more, on the same mortgage.

Prepayment penalties on fixed and variable mortgages

The penalty often matters more than the rate, and it rarely comes up when you're being sold a mortgage.

Breaking a variable-rate mortgage costs 3 months of interest at almost every lender in Canada. On a $400,000 balance at 4.20%, that's about $4,200.

Breaking a fixed-rate mortgage costs 3 months of interest or the interest rate differential (IRD), whichever is greater. The IRD compares your rate with a comparison rate over the months left in your term, and the comparison rate the lender uses makes a big difference. The big banks generally use their posted rate, minus your original discount. Monolines and credit unions generally use the discounted rate you signed. On the same mortgage on the same day, the 2 methods can differ by five figures.

So along with "which rate is lower?", ask yourself "how likely am I to break this mortgage?"

Roughly 6 in 10 Canadian mortgages are broken or significantly changed before the end of a 5-year term, because of a sale, a separation, a move, a refinance or a new job. If that's likely for you, the exit cost can matter more than the rate difference. That can make a variable the better choice, without any need to predict what the Bank of Canada will do.

What a trigger rate is

Canada has 2 kinds of variable mortgage, and the difference matters more than most people realize.

With an adjustable-rate mortgage, your payment changes when prime changes. Your budget moves with it.

With a fixed-payment variable, your payment stays the same, and the split between interest and principal changes instead. It feels safer, but it carries a specific risk. If rates rise far enough, your payment stops covering the interest. The rate where that happens is your trigger rate.

Past the trigger rate, unpaid interest is added to your balance, so the mortgage grows instead of shrinking. This is called negative amortization. Your lender will require you to raise your payment or make a lump-sum payment before it goes too far. Most lenders also set a trigger point: a balance, often the original principal or a set percentage above it, that forces the conversation no matter what.

Your trigger rate depends on your rate, your payment and your balance. Ask for it before you sign a fixed-payment variable. If the number makes you uneasy, that tells you something useful. It points toward the adjustable-payment version or a fixed rate.

How the stress test treats fixed and variable rates

The stress test treats them the same way, and occasionally that decides an approval.

Under OSFI Guideline B-20, you're qualified at your contract rate plus 2 percentage points or 5.25%, whichever is greater, whether the rate is fixed or variable. There's been no separate variable-rate rule in the test since 2021.

Variable rates are currently lower than fixed rates, so a variable mortgage often qualifies at a lower rate than the same file on a fixed term. On a tight approval, such as a first purchase at the edge of the debt ratios, a self-employed file or a rental with an offset, that difference can be what gets you approved.

It works both ways, though. If you take a variable to qualify, make sure you could carry the fixed payment anyway. If the numbers only work on a variable, you have no room for rates to rise.

How to choose without a rate forecast

No one can reliably predict where rates will go. The policy rate is at 2.25% and has been held 7 times in a row. That suggests the Bank believes it's close to neutral, but it says nothing about the next shock. In 2021, the most confident forecasters were also the furthest off.

Decide based on your own situation instead. Ask yourself these 3 questions, starting with the most important.

1. How likely are you to break this mortgage before the term ends? Think about selling, separating, moving or refinancing. If it's reasonably likely, the exit cost matters most, and a variable is usually cheaper even when its rate isn't lower.

2. What would a 2-point rise in rates do to your household? Think beyond whether you could technically afford it. If the answer is "we'd have to change how we live", take the fixed rate. Payments you know you can afford are worth more than a saving you might not get.

3. How wide is the gap between fixed and variable today? Check the fixed and variable rates on our board right now. When the variable is well below the fixed, you're being paid to take on the risk, and you can decide whether that's worth it to you. When the gap is narrow, or the variable is higher, you'd be paying extra to take on uncertainty, which is rarely a good trade.

Your answers to these 3 questions give you a decision that holds up whatever rates do. A decision based on a forecast only works if the forecast is right.

To see it in numbers, the fixed-versus-variable calculator models both options against a rate path you choose, using your own balance and amortization, and shows where they cross.