If you’re buying right now and staring down the fixed-or-variable mortgage question, the gap between the two options is wider than it’s been in a while. That’s not a reason to panic, but it is a reason to run the math instead of defaulting to whatever your parents did.
Interest Rates Right Now
The Bank of Canada (Bank) held its overnight rate at 2.25% in September, extending a pause that’s stretched back to last October. That stability has kept prime at 4.45%, and the best five-year variable mortgages are sitting around 3.3%. The next rate announcement isn’t until the end of October. Experts are currently predicting the Bank will hold the rate through to the end of the year but are warning of potential increases next year.
The best insured five-year fixed rates are closer to 4.09% right now. That’s almost a full percentage point between the cheapest variable and the cheapest big-bank fixed. Not a small gap.
Why Fixed and Variable Are Moving in Different Directions
Variable rates track the Bank of Canada’s overnight rate, and that rate has barely budged since last fall. With the next decision on October 28 and most forecasters not expecting a move before 2027, variable pricing has had nothing to react to.
Fixed rates play by different rules. They’re priced off Government of Canada bond yields, not the overnight rate, and those yields have stayed elevated. Blame inflation: Statistics Canada put headline CPI at 3.0% year-over-year, right at the ceiling of the Bank’s target range, driven mostly by gas prices as the conflict in the Middle East and renewed U.S. tariffs pushed energy costs up. When bond yields go up, so do fixed mortgage interest rates.
So Should I Choose a Fixed or Variable Rate Mortgage?
First, know what “variable” means, since it’s not one single thing. With a fixed-rate mortgage, your rate is locked for the whole term. With variable, your rate moves with the Bank of Canada, and lenders structure that in one of two ways:
- Fixed payment, variable rate. Your monthly payment stays the same for the whole term, but what it covers shifts underneath. When rates rise, more of that same payment goes toward interest and less toward your principal, and the reverse happens when rates fall. This is the more common setup in Canada, and it’s why you’ll hear about a “trigger rate”: the point where rates have climbed enough that your fixed payment no longer covers the interest owed, and your loan balance can start growing instead of shrinking.
- Adjustable payment, variable rate. Here your payment itself rises or falls with the rate, so the amount going toward principal stays consistent. Your monthly payment isn’t locked in, but there’s no trigger rate to worry about.
Most lenders default to the fixed-payment version, so ask your broker directly which one you’re being offered. Don’t assume.
Once you know which kind of variable you’re comparing against fixed, three things should drive the decision:
- Your risk tolerance. Variable means your payment (or your principal paydown, depending on which structure above you’re offered) can move if the Bank does. Are you ok with that?
- How long you’re staying put. Break your mortgage early (a move, a refinance, a change in plans) and variable penalties are typically capped at three months’ interest. Fixed penalties use an interest rate differential calculation that can run into the thousands.
- The size of today’s gap. A near full-point spread between fixed and variable isn’t guaranteed to last. Lock in variable now and the savings are already in hand, not a bet on a future rate cut that has to happen before it pays off.
None of this makes variable the automatic right call. Some buyers sleep better knowing exactly what their payment will be for five years, and that peace of mind has real value. But choosing fixed simply because it’s familiar, while a full point of savings sits on the table, deserves a harder look than most buyers give it.
The BREL Bottom Line
- Variable is sitting around 3.3%, fixed closer to 4.09-4.29%. That gap is real and unusually wide.
- Variable tracks a Bank of Canada rate that’s been parked at 2.25% for almost a year, with no move expected before 2027. And that move could be an increase.
- Fixed interest rates track bond yields, still elevated on inflation risk even though core inflation is closer to target.
- Decide based on your risk tolerance and how long you’ll hold the mortgage, not on whichever option feels safer by default.
Talk to a mortgage broker who can run both scenarios against your numbers before you sign anything. The gap is too wide right now to guess.
