Fixed or variable mortgage in late 2026: how to decide

Choosing a fixed or variable mortgage in 2026 comes down to two questions: how much payment movement can you live with, and how likely are you to break the mortgage before the term ends? Fixed gives you certainty if a rate hike comes. Variable moves with prime but usually carries a smaller penalty if you need out early, and a shorter fixed term sits in between.

Key takeaways

• As of October 22, 2026, the Bank of Canada policy rate is 2.25% and prime is 4.45%. The next decision is October 28, and the outcome isn't known yet.
• Variable rates follow prime. Fixed rates follow the 5-year Government of Canada bond yield, which has already pushed fixed rates up.
• Breaking a fixed mortgage can cost far more than breaking a variable one, because of the interest rate differential (IRD).
• A 2- or 3-year fixed can give you certainty now and a sooner chance to reassess.
• The right answer depends on your budget, your plans and your stomach for change.

Is a rate hike actually on the table?

Possibly, but nobody knows yet. CBC reported on October 21 that the Bank of Canada is increasingly expected to raise rates this month, and several banks, including BMO, Desjardins and RBC Dominion Securities, changed their forecasts to expect a hike on October 28 (Canada News Media). Inflation was 3.0% in August, per the same report.

Not everyone agrees. CMHC chief economist Mathieu Laberge said "I don't see rates going up anytime soon," and expects hikes in 2027, maybe around the end of the first quarter or early in the second (MPA). He also pointed to September's job losses of 68,300 and unemployment at 6.5%. After October 28, the next decision is December 9 (Bank of Canada).

So plan for both outcomes rather than betting on one.

How does a variable mortgage work?

A variable rate is priced as prime plus or minus a spread set when you sign, so changes to prime pass straight through to your loan (The Canadian Wire). There are two types:

• Adjustable-rate: your payment changes when prime changes.
• Fixed-payment variable: your payment stays the same, but the split between interest and principal shifts.

Here's simple math on what a 25 basis point hike means. On a $100,000 balance, 0.25% x $100,000 = $250 more interest a year, or about $21 a month. On $400,000, that's about $1,000 a year, or roughly $83 a month. This is a rough interest-only estimate, not a quote. Lenders have also been trimming discounts: RBC cut some of its variable discounts (money.ca).

How does a fixed mortgage work?

A fixed rate locks your rate and payment for the term. Fixed rates aren't set by the Bank of Canada. They track Government of Canada bond yields, mainly the 5-year yield, and move all the time rather than on announcement days (The Canadian Wire).

That's why fixed rates have already climbed. The 5-year yield was around 3.62% on October 7, and all of the Big Six banks have raised fixed rates since early September, with TD and RBC up 40 to 50 basis points on some terms (money.ca). A lot of the expected hike may already be baked into fixed pricing.

What does it cost to break each one?

This is the part most people skip, and it matters. According to the FCAC, the prepayment penalty is usually the higher of three months' interest on what you owe or the interest rate differential (IRD).

Three months' interest is simple. On a $400,000 balance at an example rate of 4% (not a quote): $400,000 x 4% = $16,000 a year, divided by 4 = $4,000.

The IRD compares your rate with a comparison rate for the time left on your term, then applies that gap to your balance for the remaining months. Lenders calculate it differently. The FCAC's own example shows three months' interest of $3,000 against an IRD of $12,000. Check your mortgage contract, and ask for the exact formula before you sign.

If there's a real chance you'll sell, move, refinance or consolidate debt in the next few years, that penalty difference can matter more than the rate.

Is a shorter fixed term a middle path?

It can be. A 2- or 3-year fixed gives you payment certainty through the next stretch of rate decisions, while letting you reassess sooner than a 5-year. Shorter terms are generally priced off shorter bond yields, and C.D. Howe noted the 2-year yield at 3.37% compared with about 3.7% for the 5-year on September 30 (Canada News Media). The trade-off: you renew again sooner, at whatever rates exist then. A shorter term can still carry an IRD penalty if you break it, though there's less time left to calculate it on.

Who does each option suit?

Fixed often suits you if:

• A payment increase would genuinely strain your budget
• You plan to stay put for the full term
• You'd lose sleep watching rate announcements

Variable often suits you if:

• You have room in your budget for higher payments
• You might sell, refinance or consolidate debt before the term ends
• You want the smaller, more predictable penalty

A shorter fixed term often suits you if:

• You want certainty now but don't want to lock in for five years
• You expect your situation (income, family, home) to change soon

Whichever you pick, you still have to qualify under the stress test, which uses the greater of your contract rate plus 2% or 5.25%.

Questions to ask before you choose

1. If prime rose by 0.50%, could I still comfortably make my payment?
2. Is the variable adjustable-rate or fixed-payment? What happens if rates rise a lot?
3. How exactly is the IRD calculated, and which comparison rate is used?
4. What are the prepayment privileges each year?
5. Can I convert from variable to fixed mid-term, and at what rate?
6. Is the mortgage portable if I move?

Run a few scenarios in our payment calculator. If you're renewing, see my renewal page, and if you're buying, start with purchase mortgages. For the latest rate news, check /news.

What I'd do next

Before October 28, figure out the payment you could handle if rates rose and the odds you'll break the mortgage early. Those two answers usually point to the right choice faster than any forecast. If you're within four months of renewal or a purchase, get a rate hold in place now so a hike doesn't decide for you.

If you want me to run your numbers, answer a few quick questions and pick a time to talk.

Frequently asked questions

This article is general information as of October 22, 2026 and isn't financial, legal or tax advice, a quote or an offer. Rates, rules and programs change. All mortgages are subject to lender approval (OAC).