It was a Sunday evening, and Priya and James were at the kitchen table with a laptop between them. Their mortgage pre-approval was expiring in three weeks, and they had to decide: lock in a 5-year fixed rate at 3.59%, or go variable at 3.35% and bet that the Bank of Canada would keep cutting? The spreadsheet was open. The coffee was cold. Neither could agree.

If this sounds familiar, you are in good company. The fixed-versus-variable debate is the most common decision point in Canadian mortgage finance. And in 2026, with rates in transition after a historic tightening cycle, the stakes feel higher than usual. Let us break it down with data, not gut feelings.

How Fixed Rates Are Determined

A fixed mortgage rate is anchored to the Government of Canada 5-year bond yield. When you lock into a 5-year fixed rate, your lender is essentially borrowing money at the bond yield and adding a spread of 150 to 200 basis points to cover their costs, risk, and profit.

As of February 2026:

The critical insight is that fixed rates are forward-looking. They reflect where the bond market thinks rates and inflation will be over the next five years. If bond traders become optimistic about economic growth or worried about inflation, bond yields rise and fixed rates follow — regardless of what the Bank of Canada does with its overnight rate.

How Variable Rates Track the Bank of Canada

Variable mortgage rates are tied directly to the lender's prime rate, which moves in lockstep with the Bank of Canada's overnight target rate. Currently:

There are two types of variable mortgages in Canada, and the distinction matters enormously:

Make sure you know which type you are signing up for. The 2022–2023 rate shock caught many fixed-payment variable borrowers off guard when they hit their trigger rate.

Historical Comparison: Which Wins More Often?

The most frequently cited study on this question comes from Dr. Moshe Milevsky at York University, whose research found that variable-rate mortgages saved borrowers money approximately 77% of the time over the period studied (1950–2000). Updated analyses covering through 2020 have found similar results, with variable winning roughly 70% to 80% of the time.

However, the period from 2022 to 2023 was a stark exception. Borrowers who took variable rates in early 2022 at 1.40% saw their rates spike to 5.70%+ within 18 months as the Bank of Canada raised rates by 475 basis points. Many of these borrowers would have been far better off locked into a fixed rate of 2.50% to 3.00% that was available at the time.

The lesson: history favours variable, but there are periods where fixed is unambiguously the better choice. The question is whether you can identify those periods in advance — and whether you can tolerate the volatility when you are wrong.

Risk Tolerance and Rate Scenarios

Let us model three scenarios on a $500,000 mortgage, 25-year amortisation. Starting rates: 5-year fixed at 3.59%, variable at 3.35%.

Scenario 1: Rates Hold or Drop Slightly

The Bank of Canada cuts the overnight rate by 25–50 bps over the next year, then holds. Variable rate drops to approximately 3.10% – 2.85%. 5-year savings with variable: approximately $6,500 – $11,200.

Scenario 2: Moderate Rate Increase

Inflation proves stickier than expected. The Bank raises by 75 bps over 18 months, then holds. Variable rate rises to approximately 4.10%. 5-year cost of variable vs. fixed: approximately $5,800 more in interest.

Scenario 3: Sharp Rate Increase

An external shock (trade war, energy crisis) drives inflation above 4%. The Bank raises by 150 bps. Variable rate rises to approximately 4.85%. 5-year cost of variable vs. fixed: approximately $16,400 more in interest.

Scenario 1 is currently the most likely based on market pricing. But scenarios 2 and 3 are not impossible. Your decision should depend on which downside you can live with.

Penalty Differences: IRD vs. Three-Month Interest

This is often the most underappreciated factor in the fixed-vs-variable decision. If you need to break your mortgage early (due to a job move, divorce, refinance, or sale), the penalty structures are dramatically different:

Consider this real-world example: You locked into a 5-year fixed at 4.79% (the posted rate) and want to break after 2 years. The bank's current posted 3-year rate is 3.89%. The IRD is calculated on the 0.90% differential across your remaining balance and remaining term. On a $450,000 balance with 3 years remaining, the IRD penalty would be approximately $12,150 — compared to just $3,769 for a variable.

If you choose fixed, consider a monoline lender, which typically calculates IRD using the discounted rate rather than the posted rate — resulting in much lower penalties.

Current Rates Side by Side

Here is a snapshot of the best available rates in Ontario as of February 27, 2026:

These rates change daily. For the most current comparison, visit CMRP to see live rates from 30+ lenders, filterable by mortgage type, term, and province.

The right choice between fixed and variable is not about predicting the future perfectly. It is about understanding your own risk tolerance, financial flexibility, and the probability-weighted outcomes of each path. Armed with the right data, you can make a confident decision — whichever direction you choose.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Rates are approximate and based on publicly available data as of February 27, 2026.