Editor's note, October 6, 2026: this article was reviewed and rewritten in our accuracy check. An earlier version contained rate quotes, a statement that the Bank of Canada was still cutting, and a recommendation for a specific term that we could not support; they have been removed or replaced with figures from the sources listed at the end of the article.
There's no answer that's right for everyone. A fixed rate buys certainty; a variable rate moves with the market and usually costs less to break. Here's how each works and how to choose in the current environment.
How each works
- Fixed rate: the rate is locked for the term (often five years). Your payment doesn't change during the term. In Canada, fixed-rate mortgages are priced mainly off Government of Canada bond yields.
- Variable rate: the rate is your lender's prime rate plus or minus a set spread, so it changes when prime changes. Prime moves with the Bank of Canada's policy rate. With an adjustable payment, your payment changes too; with a fixed payment, the split between interest and principal changes instead.
Where rates stand
The Bank of Canada has held its policy rate at 2.25% since October 29, 2025, most recently on September 2, 2026; its next decision is October 28, 2026. At that policy rate, the major banks' prime rate is 4.45%. The big banks' published forecasts, as compiled by Canadian Mortgage Trends, have largely expected the Bank to stay on hold through the rest of 2026, with more disagreement about 2027. Forecasts change; treat them as one input, not a plan.
Fixed may suit you if
- A higher payment would strain your budget, and you value knowing your payment for the whole term.
- You expect to keep the mortgage to the end of the term.
- You'd rather not watch every rate decision.
Variable may suit you if
- You have room in your budget if rates rise.
- You might sell, move or refinance before the term ends: breaking a variable mortgage usually costs three months' interest, while a fixed mortgage usually costs the greater of three months' interest and the interest rate differential (IRD), which can be much larger.
- Your lender lets you convert to a fixed rate during the term (check the terms).
Know your trigger rate
If you have a variable rate with fixed payments, your contract states a trigger rate: the rate at which your payment only covers interest. Above it, unpaid interest can be added to your balance (negative amortization). The Financial Consumer Agency of Canada explains the options if you reach it, including lump-sum payments, which it expects federally regulated lenders not to penalize in that situation.
The stress test applies either way
You qualify at the greater of 5.25% or your contract rate plus 2 points. For example, at a contract rate of 4.2% you qualify at 6.2%.
Other options
- Shorter fixed terms (for example three years) let you reset sooner.
- Hybrid mortgages split the loan between fixed and variable portions.
Questions to ask any lender
- How is the prepayment penalty calculated, and which posted or discounted rate is used for the IRD?
- What are the annual prepayment privileges?
- Can I port the mortgage to a new home, and can I convert a variable to fixed?
- For a variable with fixed payments: what is my trigger rate?
Frequently asked questions
Can I switch from variable to fixed later?
Many lenders let you convert a variable-rate mortgage to a fixed rate during the term, at the fixed rate they offer at that time. Ask whether your mortgage allows it and on what terms.
Compare the two side by side in our fixed vs variable comparison, run the numbers in our calculators, or ask Zara, Summitly's AI virtual agent. Mortgage financing is arranged through our partner, Mortgage Squad Advisors.
