Quick Answer — Fixed vs. Variable in Canada Right Now
- As of April 2026, the best 5-year variable rate in Canada is approximately 3.30–3.35%; the best 5-year fixed rate is approximately 3.84–4.04%.
- Variable rates track the Bank of Canada overnight rate (2.25%); fixed rates track 5-year Government of Canada bond yields, which have been rising.
- Choose fixed for payment certainty, especially if your budget cannot absorb an increase.
- Choose variable if you have financial flexibility, a short timeline, or expect rates to stay flat or fall.
- The factor most Canadians miss: break penalties. Variable mortgages charge three months' interest; fixed mortgages use the Interest Rate Differential, which can cost five figures at a Big Bank.
Why This Decision Feels Harder in 2026 Than Last Year
If you're trying to choose between a fixed and a variable mortgage right now, you're not overthinking it — the decision genuinely is harder this year than it has been in a while.
Over one million Canadian mortgages are up for renewal in 2026, many locked in at pandemic-era rates below 2.50%. Add a widening gap between fixed and variable pricing, a Bank of Canada that has paused after a long cut cycle, and trade uncertainty pushing rates either direction, and you get today's confused market.
This guide won't tell you which product to pick — your life decides that. It gives you the framework, the math, and the factor most comparison guides skip.
How Each Rate Type Actually Works (Plain English)
Fixed-Rate Mortgages
A fixed-rate mortgage locks your interest rate for the length of your term — typically 2, 3, or 5 years. Your payment stays exactly the same from your first month to your last, no matter what the Bank of Canada does in between.
Fixed rates are driven by the 5-year Government of Canada bond yield, not the Bank of Canada's overnight rate. That's why fixed rates can rise even when the BoC holds or cuts — bond markets move on inflation expectations, and they move fast.
For example: if you lock in a 5-year fixed at 3.74% on a $600,000 mortgage with a 25-year amortization, your monthly payment is approximately $3,076 — and it stays there for five years, regardless of what happens to the economy.
Variable-Rate Mortgages
A variable-rate mortgage moves with your lender's prime rate, which tracks the Bank of Canada's overnight rate. Variable mortgages are typically quoted as “prime minus” a discount — so if prime is 4.45% and your discount is 1.00%, your effective rate is 3.45%.
Variable Rate Mortgage (VRM): Your payment stays fixed, but when rates rise, more of each payment goes toward interest and less toward principal. Your amortization quietly stretches.
Adjustable Rate Mortgage (ARM): Your actual payment amount changes whenever the BoC announces a rate change. This type offers more transparency but less monthly predictability.
Know which one you're signing. The risk profile of a VRM and an ARM are meaningfully different, and most lenders won't volunteer the distinction unless you ask.
Fixed vs. Variable at a Glance: The 2026 Numbers
The Bank of Canada has held its overnight rate at 2.25% since early 2026. Fixed rates, however, are priced off bond yields — and bond markets remain unsettled by trade uncertainty and geopolitical risk. This means fixed rates can move upward even if the BoC sits still.
The table below compares both options on a $600,000 mortgage with a 25-year amortization, using indicative rates as of April 2026. All figures are estimates — your actual rate will depend on your credit profile, lender, and whether your mortgage is insured or conventional.
| Rate Type | Best Rate Apr 2026 |
Monthly Payment $600K, 25yr |
Est. 5-Year Interest Cost | Break Penalty |
|---|---|---|---|---|
| 5-Year Fixed | 3.74% | $3,076 | ~$103,400 | IRD — up to $10K–$25K |
| 5-Year Variable | 3.45% | $2,985 | ~$95,300 | 3 months' interest ~$2,500 |
| 3-Year Fixed | 3.69% | $3,060 | ~$61,800 | IRD — lower (shorter term) |
variable vs. 5-yr fixed
(variable vs. 5-yr fixed)
(fixed vs. variable)
On paper, variable is the cheaper option today. But the spread is narrow enough that a few rate hikes — or a penalty if you break the fixed early — can completely reverse the math.
The Cost of Breaking Your Mortgage Early — and Why It Changes Everything
One number most mortgage guides bury in a footnote can cost you $15,000 or more. That number is your prepayment penalty — and it's not theoretical. Life happens. You get a promotion in another city. Your family grows and you need a bigger home. All of these situations can trigger a break penalty.
Fixed Mortgage — IRD Penalty: The lender calculates the difference between the interest rate you locked in and the rate they can currently offer for the remaining term, multiplied by your outstanding balance. On a $600,000 mortgage with 2 years left at 3.74%, if rates are now 3.00%, the estimated IRD is roughly $8,000–$12,000. These are estimates only — calculations vary significantly by lender. Always request a written penalty estimate.
Variable Mortgage — Three Months' Interest: The penalty is almost always three months' interest on your outstanding balance. On a $600,000 mortgage at 3.45%, that's approximately $2,500–$3,000 as your balance pays down. If you're weighing this alongside a complex file — self-employed income, multiple properties, or tight qualification ratios — Razi Khan, Founder and Mortgage Broker at Pegasus, can model both penalty scenarios against your specific situation before you commit.
a fixed mortgage in Year 1
(3 months' interest)
vs. variable (Years 1–3)
If there is any realistic chance you'll break your mortgage before the term ends, the penalty comparison may matter more than the interest rate itself. For situations where breaking a fixed mortgage doesn't make financial sense, there are alternatives to breaking your mortgage — including blended mortgages — worth exploring with your broker.
How to Make the Decision in 5 Steps
- 1Know Your Real TimelineAre you buying, renewing, or refinancing? When do you realistically expect to move, sell, or significantly change your financial situation? A variable mortgage may make sense if your timeline is 2–3 years; a fixed rate may be smarter if you're planting roots for five or more.
- 2Run Your Debt-Service Ratios Under OSFI RulesUnder OSFI's B-20 stress test, you must qualify at the higher of your contract rate plus 2%, or 5.25% — whichever is greater. Run this for both rate types before you commit. Understanding how inflation affects your rate choice can also help you anticipate how conditions may shift before renewal.
- 3Stress-Test Your Budget Against a 1% Rate IncreaseAdd 1% to whatever variable rate you're considering. Can your household absorb that higher monthly payment comfortably? On a $600,000 mortgage, a 1% rate increase adds roughly $300–$330 per month. If that number creates anxiety, a fixed rate may be worth the premium.
no change to payment
rate becomes 3.70%
rate becomes 4.20%
- 4Price the Break Penalty Before You Commit to FixedAsk your lender for a written prepayment penalty estimate before you sign. Lenders are required to provide this on request. Look specifically at the IRD calculation methodology — some lenders use posted rates (which inflate the penalty) while others use discounted rates.
- 5Compare Rates From Multiple Lenders Through a BrokerYour current bank's renewal offer is almost never their best offer. Brokers work with 50+ lenders and can run a fixed vs. variable comparison for your specific mortgage balance and timeline in minutes. There is no obligation to accept any offer, and the comparison costs you nothing.
Pick Your Path — 90 Seconds to a Working Hypothesis
You have a tight budget, you're a first-time buyer stretched to qualify, or you simply value payment certainty more than potential savings.
You have cash flexibility, a short timeline (may move or refinance within three years), or you believe rates are more likely to fall than rise.
| Your situation | Likely fit | Why |
|---|---|---|
| Tight budget, can't absorb payment shock | Fixed | Locks in payment for the full term |
| Moving or refinancing within 3 years | Variable | Lower break penalty if life changes |
| First-time buyer, stretched to qualify | Fixed | Certainty during the first ownership years |
| Investor with refinance plans | Variable | Flexibility for mid-term restructuring |
| Renewing with strong home equity | Either | Depends on your rate-outlook view |
| Risk-averse, values sleep over savings | Fixed | Emotional cost of variable outweighs the discount |
The quick primer — VRM vs. ARM
A variable-rate mortgage (VRM) has an interest rate that moves with your lender's prime rate, but your monthly payment usually stays constant — when rates rise, more of your payment goes to interest. An adjustable-rate mortgage (ARM) also tracks prime, but the payment itself rises and falls with every Bank of Canada move. Most Canadian "variable" mortgages are actually VRMs, so read your commitment carefully. Your trigger rate is the interest rate at which your VRM payment no longer covers any principal. For background, see our fixed mortgage rates in Canada guide.
Reading Your Renewal Letter — the April 2026 Numbers
The Bank of Canada held its overnight rate at 2.25% on March 18, 2026 — its third consecutive pause. Lender prime rates stay at 4.45% and variable pricing steady. The next BoC decision is scheduled for April 29, 2026, and most forecasters currently expect another hold. Fixed rates are a different animal. Lenders fund 5-year fixed mortgages against 5-year Government of Canada bond yields, which have climbed on tariff concerns and geopolitical tension. According to Ratehub.ca, the best 5-year fixed rate has moved from about 3.79% in February 2026 to roughly 3.84–4.04% today. For more, see how mortgage rates are determined in Canada.
| Rate type | April 2026 range | Priced from | Break penalty |
|---|---|---|---|
| 5-year fixed | ~3.84% – 4.04% | 5-year GoC bond yield | Interest Rate Differential (IRD) — typically five figures |
| 5-year variable | ~3.30% – 3.35% | BoC overnight rate (2.25%) via prime | Three months' interest |
| Stress test (both) | Contract rate + 2% (or 5.25%, whichever higher) | OSFI B-20 Guideline | N/A — qualification rule |
Rates indicative as of April 2026 per Ratehub.ca and WOWA.ca; your actual rate will depend on your credit, income, and mortgage insurance status. Rules may vary by province — Quebec holders should consult a local professional familiar with notarial mortgage requirements.
Five Ways to Actually Make the Call This Week
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1
Check today's rate spread for your exact scenario.Insured vs. conventional, high-ratio vs. low-ratio, and your credit profile all affect what you actually qualify for. The best advertised rate is not always your rate.
-
2
Run your real balance on both options.Staring at $2,647 vs. $2,950 on your own mortgage lands differently than an industry average. Try our mortgage payment calculator on your real numbers.
-
3
Stress-test your budget at the higher rate.Under the OSFI B-20 stress test, borrowers must qualify at the higher of their contract rate plus 2%, or 5.25%. The lender already checks that you can afford a higher payment; your job is to check whether you can afford it comfortably.
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4
Be honest about your timeline.If there's a meaningful chance you'll break the mortgage within three years, variable's lower break penalty may matter more than any rate spread.
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5
Book a broker comparison.A licensed broker works with 50+ lenders and can often find a contract rate up to 0.25% lower than a bank's best offer. Learn more about why work with a mortgage broker.
Common Mistakes Canadians Make on This Decision
- Assuming fixed is "automatically safer." It locks your rate but exposes you to large IRD penalties if life changes.
- Comparing rates without comparing prepayment privileges. A 3.89% rate with weak prepayment rules can cost more than a 3.94% rate with strong ones.
- Forgetting the variable-to-fixed conversion option. Most lenders allow conversion at any time during the term, typically without penalty, at the lender's then-current fixed rate.
- Qualifying yourself at the contract rate. The lender stress-tests at contract + 2% (or 5.25%); you should too.
- Locking a 5-year fixed while planning to move in 24 months. The IRD penalty can eat years of savings in one transaction. See how to avoid an expensive break penalty.
- Skipping the broker step. A broker's rate may be up to 0.25% lower than a bank's posted rate, which can translate to thousands of dollars over a 5-year term.
Complex Files — When a Broker Changes the Math Entirely
Standard rate comparisons assume a straightforward borrower: employed W2 income, clean credit, standard down payment. If that's you, the math in this article applies directly. But for self-employed borrowers, credit-challenged applicants, investors building multi-property portfolios, or Canadians buying across the border, the fixed-vs-variable question often gets decided by something else entirely — whether the lender will even fund the file, and at what product.
That's the territory where working with a broker shifts from "nice to have" to "essential." Razi Khan, Founder and Mortgage Broker at Pegasus, has spent over 20 years placing exactly these files — often with alternative lenders who price differently, structure differently, and charge penalties that don't look anything like the Big Bank IRD. For complex files, the fixed-vs-variable spreadsheet comparison is only the first step.
Frequently Asked Questions
Is variable really still cheaper than fixed in Canada right now in 2026?
What happens to my variable mortgage if the Bank of Canada raises rates on April 29?
Can I switch from a variable to a fixed mortgage later if I change my mind?
How much does it actually cost to break a fixed mortgage in Canada?
Does the mortgage stress test work differently for fixed vs. variable?
Is a 5-year fixed mortgage still the most popular choice in Canada?
Does a mortgage broker cost me anything extra compared to going to my bank?
Get a free, no-pressure comparison for your actual numbers.
A Pegasus broker will run fixed vs. variable on your real balance, show the penalty math for both, and shop 50+ lenders on your behalf.
Speak to a Toronto brokerOr call 416-281-9628
About the author
Razi Khan
Founder, CEO & Licensed Mortgage Broker · Pegasus Mortgage Lending · Toronto, Ontario · FSRA Lic # 11479
Razi Khan is the Founder, CEO, and a licensed Mortgage Broker at Pegasus Mortgage Lending Center Inc., based in Toronto. With over 20 years of experience in the Canadian mortgage industry, Razi has personally guided more than 3,000 clients through some of the most complex and high-stakes financial decisions of their lives — from first-time purchases in the GTA to refinancing strategies, alternative lending solutions, and cross-border mortgages for Canadians buying in the United States.
Razi founded Pegasus in October 2008, launching the brokerage at the height of a global financial crisis. He works across the full spectrum of borrower profiles, with particular expertise in complex files including self-employed borrowers, credit-challenged clients, and investors building multi-property portfolios.
Learn more about Razi Khan →Sources & References
- Bank of Canada — March 18, 2026 Rate Statement · bankofcanada.ca
- OSFI — Guideline B-20: Residential Mortgage Underwriting · osfi-bsif.gc.ca
- CMHC — 2025 Mortgage Consumer Survey · cmhc-schl.gc.ca
- Ratehub.ca — Best 5-Year Fixed & Variable Rates, April 15, 2026 · ratehub.ca
- WOWA.ca — Best Mortgage Rates Canada, April 15, 2026 · wowa.ca
- Canadian Mortgage Trends — Fixed vs. Variable Expert Panel, April 14, 2026 · canadianmortgagetrends.com
- FSRA — Mortgage Brokerage Licensing & Disclosure · fsrao.ca