Fixed vs variable mortgage rates in Canada for 2026: which wins, and when

The honest answer to "fixed or variable in 2026?" is that it depends on two things: whether you think the Bank of Canada will resume rate cuts in the next year or two, and how much payment uncertainty you can absorb without losing sleep. The 2026 spread is about 0.65 percentage points in favour of variable (best rates today: variable around 3.35%, 5-year fixed around 4.09%), and Canadian mortgage history favours variable in aggregate. But "in aggregate" is not "in your specific 5-year window." This post walks through what each side actually means, what the current rate picture says, the historical record and its caveats, the two big risks each side carries, and the practical decision framework most Canadian buyers settle on.

What fixed and variable actually mean in Canada

A fixed-rate mortgage locks your interest rate for the full term (typically 1 to 5 years, sometimes 7 or 10). The lender quotes a contract rate at signing. That rate does not move for the duration of the term, regardless of what the Bank of Canada does. Your payment is constant. At the end of the term, you renew at the prevailing rates, which may be higher or lower.

A variable-rate mortgage has a rate that moves with the lender's prime rate, which itself moves with the Bank of Canada's overnight target. The contract is usually expressed as "prime minus X" (today, something like prime minus 1.10%, which works out to about 3.35% when prime is 4.45%). When the BoC raises or cuts the overnight rate, the prime rate follows within a day, and your mortgage rate follows within the same billing cycle.

Variable mortgages further split into two sub-types that matter a lot in practice:

• Adjustable-payment variable. Your monthly payment moves with the rate. If rates rise, the payment rises so the loan still pays off on schedule. RBC and Scotiabank offer this version.
• Fixed-payment variable. Your payment stays the same regardless of rate moves. What changes is the split between interest and principal. If rates rise, more of each payment goes to interest, less to principal, and your amortization stretches out silently in the background. TD, BMO, and CIBC use this version. This is where the trigger-rate problem lives, covered below.

One more Canadian-specific quirk worth knowing: by federal statute (the Interest Act, R.S.C. 1985, c. I-15), fixed-rate mortgage interest must be compounded semi-annually, not monthly. Variable mortgages typically compound monthly per the contract. The result is that a Canadian fixed mortgage at 5.00% produces a slightly lower monthly payment than an American fixed mortgage at the same nominal rate (the calculator math is verified against the FCAC reference calculator to the cent).

The 2026 rate picture

The Bank of Canada cut its policy rate from a peak of 5.00% in June 2024 down to 2.25% by October 2025, then held at 2.25% through four consecutive announcements into mid-2026. As of June 2026:

The 0.65-point spread is narrower than the 1.0 to 1.5 point gaps that variable mortgages enjoyed in 2017 to 2019 but is still real money. On a $500,000 mortgage at a 25-year amortization, the difference in monthly payment between 3.35% variable and 4.09% fixed works out to roughly $210 a month in the first year, or about $2,500 a year in interest savings before any rate moves.

Bond markets going into the June 10, 2026 BoC announcement priced a roughly 96% probability of no change. The consensus view is that the variable side will move sideways through the rest of 2026, with cuts possible if inflation or growth surprises. That is a directional reading, not a prediction.

The historical record (and its limits)

The most-cited Canadian study on this question is a 2001 paper by Moshe Milevsky at York University's Schulich School of Business. It analyzed Canadian mortgage data from 1950 to 2000 and found that variable rates outperformed 5-year fixed rates roughly 70% to 90% of the time. The result has been re-tested in updates that extend through more recent decades, and the headline finding has held up: in long historical samples, variable wins more often than fixed.

The caveats matter just as much as the finding:

• Milevsky himself has cautioned that past data does not predict any specific 5-year window. The 70 to 90% range is an aggregate win rate across decades, not a per-period guarantee.
• The historical record includes the early 1990s and late 2010s, periods when rates trended lower for years and variable mortgages benefited from declining prime. It also includes the late 1970s and early 1980s, when rates spiked to double digits and variable mortgages got punished. The 70 to 90% number is a long-horizon average.
• The 2022 to 2023 BoC tightening cycle (rates from 0.25% to 5.00% in 18 months) was one of the worst possible windows for variable borrowers in modern history. The historical odds will not protect you from a specific 5-year period that looks like that one.

The practical takeaway from the historical record is not "always pick variable." It is "if you can absorb the bad scenarios without losing sleep, the math has historically rewarded the choice."

A worked example at June 2026 rates

Consider a $500,000 mortgage, 25-year amortization, originated June 2026. Run it at the two best available rates:

Variable 3.35%   →  $2,455 / month
Fixed    4.09%   →  $2,665 / month

Monthly delta:        $210 in favour of variable
Five-year delta:      ~$12,600 in payments if rates hold

That is the baseline assumption: rates hold flat for five years. The variable side wins by about $12,600 in cumulative payments. Now run two stress cases:

Stress case 1: BoC cuts another 100 basis points by end of 2027. Variable drifts down toward 2.35% over 18 months, then holds. The variable side wins by closer to $20,000 over five years. This is the "variable shines" scenario.

Stress case 2: BoC reverses and hikes 200 basis points over 2026 to 2027. Variable climbs to roughly 5.35%, fixed stays at 4.09% because it is locked. The fixed side wins by roughly $8,000 over five years, and the variable borrower also faces payment shock or trigger-rate exposure depending on their lender. This is the "variable bites" scenario.

The calculator runs whichever specific rate paths you want to compare; the mortgage calculator page has the math, and the renewal panel projects what happens at year five under whatever rate you input for the second term.

The trigger-rate trap (a variable-only risk)

If you have a fixed-payment variable mortgage at TD, BMO, or CIBC, your payment does not change when rates rise. What changes is the split between interest and principal. At a high enough rate, your payment no longer covers the interest, and your balance starts going up instead of down. The threshold is the trigger rate.

In late 2022, after the BoC's aggressive hike cycle, the Bank of Canada estimated that about 50% of variable-rate mortgages with fixed payments had hit their trigger rate, with another 15% on track to do so by mid-2023. CIBC alone reported tens of billions in negative- amortization balances by Q4 2023. The current 2026 environment is far less stressed (BoC at 2.25%, not 5.00%), but the structural risk remains in any rate-rising cycle.

The escape hatches: voluntarily increase your payment so it covers interest at the new rate; switch to a fixed-payment-that-adjusts product if your lender offers one; convert mid-term to a fixed rate; or pick an adjustable-payment variable in the first place (RBC, Scotiabank), where rising rates show up as a higher payment rather than as silent negative amortization.

The prepayment penalty trap (a fixed-only risk)

The flip side. If you need to break your mortgage early (selling to relocate, divorce, refinancing to consolidate debt at a better rate, switching lenders), the cost differs dramatically:

• Variable mortgage penalty: 3 months of interest. On a $500,000 balance at 3.35%, that is roughly $4,200. Predictable and capped.
• Fixed mortgage penalty: the greater of 3 months of interest or the Interest Rate Differential (IRD). The IRD is the lender's loss on the rate change. On a Big 6 fixed mortgage, the IRD is typically calculated using posted rates at signing and the current posted rate for the remaining term, which routinely produces penalties of $10,000 to $30,000 depending on the size of the balance, the size of the rate move, and the time remaining.

Monoline lenders (MCAP, First National, Scotiabank-affiliated brands) typically use a less punishing IRD formula based on contract rates rather than posted rates, which produces smaller penalties. If you anticipate any chance of needing to break the mortgage early, the lender choice can matter as much as the fixed-vs-variable choice.

The hybrid option

Some lenders offer a hybrid (or "50/50") mortgage, which splits your principal between a fixed-rate portion and a variable-rate portion. You get partial certainty and partial exposure to falling rates. The trade-offs:

• The rate on each portion is usually slightly worse than the best standalone rate.
• Refinancing or breaking the mortgage involves both penalty regimes (the fixed portion gets the IRD treatment).
• You are always "half wrong" regardless of which direction rates move; the upside is that you are never fully wrong.

For risk-averse borrowers who genuinely cannot pick a side, the hybrid is a defensible compromise. For everyone else, the simpler all-fixed or all-variable choice usually produces better outcomes because the rate discount on each side is real and additive.

A decision framework

Three filters that resolve most fixed-vs-variable decisions:

1. Can you sleep at night if your payment goes up $400 to $800 a month for a year? If yes, variable. If no, fixed. This is the single most predictive question. Variable mortgages are not just mathematically different from fixed mortgages; they are a different psychological product. Most borrowers who switch from variable to fixed mid-term do it for emotional reasons after a rate-hike cycle, not because the math says it is wrong. If you would do that, you would have been better off in fixed from the start.

2. What does the rate environment look like, and where is the spread? When variable mortgages are 100+ basis points cheaper than fixed (as in 2017 to 2019), the variable case is strong. When the spread is inverted (variable above fixed, as in late 2022 and 2023), the variable case weakens significantly. The current 65- basis-point spread sits in the middle: variable is cheaper but not dramatically so. That argues for variable if you can handle volatility, fixed if you cannot.

3. How likely are you to break the mortgage early? If there is a real chance you will sell, relocate, refinance, or switch lenders in the next 5 years, the IRD penalty on a Big 6 fixed mortgage can wipe out years of rate savings. Variable's 3-month-interest penalty is more forgiving for borrowers whose plans are not 100% certain.

If those three filters all point the same way, the answer is easy. If they point different ways, the hybrid option is the honest compromise.

What to do next

The CalcNorth mortgage calculator runs both sides at your specific numbers, including the semi-annual-compounding adjustment that affects the Canadian payment math. The mortgage affordability calculator shows the price your income can support under the OSFI stress test (which applies whether you choose fixed or variable). And the CMHC calculator covers the insurance premium math if your down payment is under 20%.

For 2025 to 2026 renewers facing payment shock from low-rate originations, the calculator's renewal panel projects the new payment at any rate you input for the next term. The Bank of Canada's staff note 2025-21 estimates that about 60% of mortgage holders renewing in 2025 and 2026 see a payment increase, with the average shock at the height of the cycle running roughly $400 a month.

Sources

• Current 2026 mortgage rates and the variable-vs-fixed spread: Ratehub's 5-year variable and 5-year fixed rate pages.
• Bank of Canada policy rate, current level and history: Bank of Canada, Policy interest rate and April 29, 2026 announcement.
• 1950 to 2000 variable-vs-fixed historical study: Moshe Milevsky, York University Schulich School of Business; coverage and follow-up at Mortgage Rates News and discussions of the study's limits at RateSpy.
• Trigger-rate prevalence and negative-amortization data after the 2022 hiking cycle: Bank of Canada, Staff Analytical Note 2022-19.
• 2025-2026 renewal payment-shock estimates: Bank of Canada, Staff Analytical Note 2025-21.
• Semi-annual compounding for fixed mortgages, section 6: federal Interest Act, R.S.C. 1985, c. I-15.
• Reference calculator used to verify CalcNorth's Canadian mortgage math: Financial Consumer Agency of Canada, Mortgage Calculator.