On October 28, 2026, the Bank of Canada raised its policy rate by 25 basis points to 2.50%, its first increase since July 2023, and prime rose to 4.70%. As of November 6, 2026, nesto’s 5-year variable rate is 3.66%, and its 5-year fixed rate is 4.44%. Variable is still cheaper to start, but the case for it no longer rests on rate cuts. It now depends on whether your budget can absorb further increases, because the Bank says it may need to raise rates again (Bank of Canada).

Choosing between fixed and variable is the first big decision in any mortgage. We’ll explain how fixed and variable mortgages work, what a rate increase costs, and how to choose based on your budget rather than a forecast.

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Key Takeaways

• A fixed rate keeps your rate and payment steady for the term; an adjustable or variable rate moves with prime.
• After the Bank of Canada’s October increase, variable rates start cheaper but carry the risk of further increases.
• Choose based on how much payment increase your budget can absorb, not on a rate forecast.

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What’s the Difference Between Fixed and Variable Rates?

A fixed-rate mortgage has a fixed interest rate, meaning it will remain the same throughout the mortgage term. The interest and principal portions of your mortgage payment will remain the same regardless of changes in interest rates.

A variable mortgage has an interest rate that fluctuates, rising or falling with changes in the prime rate. Variable mortgages can either be:

• Adjustable-rate (ARM): Mortgage payments adjust as the prime rate changes throughout the term. The principal remains fixed; however, the interest component will fluctuate with changes to the prime rate. With an ARM, interest rate changes during your term will not affect your remaining amortization.
• Variable-rate (VRM): Mortgage payments remain fixed throughout the term. Any changes to the prime rate will affect your interest and principal. If interest rates increase, more of your mortgage payment will go toward interest, and less will go toward the principal. If interest rates decrease, more of your mortgage payment will go toward principal rather than interest. With a VRM, any change in interest rates during your term will affect your remaining amortization.

At nesto, variable mortgages are adjustable-rate (ARM): the payment changes whenever prime changes, so there’s no trigger rate.

Pros & Cons of a Fixed Rate Mortgage

A fixed rate helps with budgeting by providing financial predictability and stability, with mortgage payments staying the same throughout the term. With fixed rates, you can lock in your rate and payment for a specified period, known as your term, typically 1, 2, 3, 4, 5, 7 or 10 years. Having a fixed interest rate for the entire term can protect you from interest rate increases.

Locking into a fixed rate for the entire term can also mean missing out on lower interest rates if rates fall during your term. While a fixed rate provides a stable, predictable mortgage payment for years, it carries a significant interest rate differential penalty (IRD). If you break the mortgage before the end of your term, say to take advantage of lower interest rates, you must pay either the interest rate differential (IRD) or 3 months’ interest, whichever is higher. At nesto, we calculate the penalty on your actual rate, with no posted rates or reinvestment fee added, and our mortgage penalty calculator shows the difference.

Pros & Cons of a Variable Rate Mortgage

Variable rates are beneficial if interest rates decrease during your mortgage term. You may save significantly by choosing a variable rate, as you are more likely to reduce interest costs over the long term. You can also lock in a fixed rate at any time, such as when interest rates start to rise, through an early renewal. Variable mortgages typically have lower early prepayment penalties, calculated as 3 months’ interest.

If interest rates rise and you don’t convert to a fixed-rate mortgage, you could end up paying significantly more interest. Variable rates can also be challenging to budget for, as your payments may fluctuate with changes in the prime rate, similar to ARMs. With VRMs, you risk having most of your payments go toward interest, meaning you could hit your trigger rate (where your mortgage payments no longer cover any principal) or trigger point (the balance owing is higher than the original loan amount), with the added risk of over-amortization.

Fixed vs Variable Mortgages

A well-known 2001 study by York University Professor Moshe Milevsky examined fixed and variable mortgage rates between 1950 and 2000. The study found that borrowers saved 90% of the time by choosing a variable mortgage. In the other 10% of cases, this was only sometimes true and depended heavily on various factors.

The study concluded that borrowers are better off locking into a fixed rate if interest rates are low. Financial markets may not repeat the same patterns under new socioeconomic constraints as they did when the study was written over 20 years ago.

Which Is Right for You?

The interest rate differential (IRD) penalty on a fixed-rate makes this option only sometimes the most sensible one. A fixed-rate mortgage may be the best choice if you value stability and predictability, or if you’re concerned interest rates may rise.

If you’re comfortable with some risk, or if rates have peaked and may decline over the next few years, a variable mortgage may be the best choice.

It’s always advisable to look at your financial situation holistically. At any given time, no 2 borrowers will have the same factors affecting their risk, needs and goals related to borrowing or homeownership. This table is a starting point:

If this describes you	Lean toward	Why
Your budget has little room for a higher payment	Fixed	The rate and payment can’t rise during the term.
You could absorb a payment increase of 1 percentage point or more	Variable	You accept more rate risk in exchange for a lower starting rate.
You may sell, refinance or move before the term ends	Variable	Breaking a variable usually costs 3 months of interest; breaking a fixed can cost the interest rate differential.
You’d rather not follow interest rate forecast	Fixed	Your payment stays the same, regardless of what the Bank of Canada does.
You want the option to lock in later if rates rise	Variable	You can convert to a fixed rate mid-term at no charge, at the lender’s non-discounted fixed rate.
You’re renewing with a payment that’s already stretched	Fixed or a shorter fixed term	You pay for certainty; compare a 3-year with a 5-year before choosing.

Comparing 5-Year Fixed and 5-Year Variable Rates Over Time

_{Source: BankofCanada.ca}

Historically, variable rates have often been much lower than fixed rates. However, this has not always been the case; at times, the difference between fixed and variable rates has been negligible.

The Canadian mortgage market has changed significantly in recent years, with variable rates occasionally surpassing fixed rates. This highlights the importance of closely monitoring market trends and considering future interest rate predictions, as well as personal factors, when deciding between fixed and variable mortgages.

Popularity Shifts Between Fixed and Variable Rates Over Time

Fixed-rate mortgages have traditionally been the more popular choice in Canada, largely because they offer payment certainty and protection against sudden interest rate changes.

Borrower preferences tend to track interest rates, with popularity shifting as expectations about future rate movements change. When rates are falling or expected to decline, more borrowers are willing to accept greater variability for potential savings. When rates are rising, or market uncertainty increases, borrowers typically shift back to the stability of a fixed rate.

Between 2020 and 2022, variable mortgages gained significant popularity as interest rates fell to historic lows. In January 2020, variable rates accounted for just 7% of newly extended mortgages. By April 2021, they had overtaken fixed rates to become the most popular option, with 36% choosing variable. That trend peaked in January 2022, when variable mortgages accounted for 57% of new lending, then reversed sharply as rates rose, dropping to just 5% by July 2023.

More recently, variable rates regained popularity as interest rates declined. In January 2025, variable mortgages accounted for 38% of newly extended mortgages, surpassing 3- to 5-year fixed terms at 36%. As economic uncertainty resurfaced later in the year, borrower preferences shifted again, with 3- to 5-year fixed rates reclaiming the top spot, accounting for 43% of new mortgages in August 2025, compared to 24% for variable rates.

What Canadian Borrowers Are Choosing in 2026

Borrowers are choosing flexibility over length. In June 2026, 36% of newly extended mortgages at chartered banks were variable, and 39% were fixed for 3 to under 5 years, while only 10% were fixed for 5 years or longer, according to the Canada Mortgage and Housing Corporation (CMHC). In other words, about 90% of new mortgage terms were either variable or fixed for less than 5 years. The variable share shifted sharply during the year: 45% in December 2025, 29% in April 2026 and 36% in June. (CMHC)

Nesto’s own data show a mix that moved a lot ahead of the October 28 decision. About two-thirds of nesto applications were variable: 64.1% from August 5 to September 1 and 68.3% from September 2 to October 18. Among funded loans, the variable share slipped from 61.2% to 59.7% across those two windows and to 56.8% for October 19 to 23, while fixed rose to 43.2%. Applications and funded loans are different clients, and the data are preliminary, so read them as a snapshot, not a trend (nesto data through October 23, 2026).

That mix leaves most borrowers exposed to whatever rates look like sooner, and that exposure is the trade-off worth understanding before you choose. As CMHC’s deputy chief economist put it, Canada’s mortgage system already passes interest-rate changes through to households relatively quickly because most borrowers renew every few years, unlike the United States and much of continental Europe where long-term fixed mortgages are common. Shorter terms speed that up further.

Two things explain the shift. Borrowers who expected rate cuts chose short terms so they could renew into them, and shorter terms have been cheaper because the yield curve slopes upward: on October 30, the Government of Canada 2-year yield closed at 3.28% and the 5-year at 3.51% (Bank of Canada). The first reason ended on October 28, when the Bank raised its policy rate. The second still holds, for now.

Drivers for Fixed and Variable Mortgage Rates

Fixed and variable mortgage rates are influenced by various economic factors, including inflation, unemployment, the Canadian and US economies, and Bank of Canada policy.

Variable mortgage rates are based on the Bank of Canada (BoC) policy rate. Lenders adjust their prime rates when the bank changes the policy rate, either increasing or decreasing them in line with monetary policy. Most lenders and financial institutions set their prime rates at the policy rate plus 2.2%.

Fixed mortgages follow bond yields of corresponding maturities. Bond yields are indirectly influenced by expectations about how the economy (inflation, unemployment, etc.) will perform and how the BoC will respond by adjusting the policy rate. Fixed-rate mortgages are typically priced 1 to 2 percentage points above the corresponding bond yield.

That difference in how they flow through the economy explains why the 2 rate types moved apart in 2026. The Bank of Canada held its policy rate at 2.25% from October 2025 until October 28, 2026, so variable pricing barely moved until then. Over the same period, the 5-year Government of Canada bond yield rose from about 2.6% before late February to about 3.7% in late September, and it closed at 3.51% on October 30 (Bank of Canada). Lenders raised fixed rates repeatedly along the way. A borrower who only watched the Bank’s announcements would have missed most of this year’s fixed-rate changes.

What Rate Type Should You Choose If Rates Increase or Decrease?

A fixed rate may be the most sensible option if interest rates are rising or expected to rise. A fixed rate benefits those who don’t have room in their budget for increases in mortgage payments or who want to ride out higher rates by locking in a lower rate.

Choosing a variable rate may be the most sensible option if interest rates decrease or are expected to in the near future. If rates decrease, those who have chosen a fixed rate will be locked into a higher rate for the term, with a significant penalty for breaking the mortgage. Those who choose a VRM will realise immediate cost savings, as more principal will be paid down, shortening the amortization period. Those who choose an ARM will benefit from immediate cost savings through lower mortgage payments.

How Many Rate Hikes Does It Take for Variable to Match Fixed?

You can estimate it with one subtraction. As of November 6, 2026, nesto’s 5-year fixed rate is 4.44%, and its 5-year variable rate is 3.66% (both insured rates). Subtract the variable rate from the fixed rate, then divide by 0.25 to see how many 25-basis-point increases it would take for the variable rate to reach today’s fixed rate.

Gap between the fixed and variable rate	25-point increases needed to match
0.25 percentage points	1
0.50 percentage points	2
0.75 percentage points	3
1.00 percentage point	4
1.25 percentage points	5

This compares rates only; it isn’t a total-cost comparison. It assumes the variable rate rises in 25-point steps and the fixed rate stays the same, and it ignores amortization, payment structure, prepayment privileges, penalties and the chance that rates fall. The Bank of Canada has said it will take decisions one meeting at a time, so the number of increases ahead isn’t known. Converting later would mean your lender offers their non-discounted fixed rate, so this comparison is for choosing today, not for planning a conversion.

What Each Increase Costs on an Adjustable-Rate Mortgage

On an adjustable-rate mortgage, the payment moves with prime. Here’s roughly how much a rate increase adds to the monthly payment:

Mortgage balance	+0.25 points	+0.50 points	+1.00 point
$300,000	$41 more a month	$82 more a month	$167 more a month
$500,000	$68 more a month	$137 more a month	$279 more a month
$750,000	$102 more a month	$206 more a month	$418 more a month

The example assumes a 25-year amortization, monthly compounding and a starting rate of 3.66%; the exact increase depends on your rate and balance. Since nesto’s variable mortgages are adjustable, the payment changes with each change in prime. Our payment shock calculator shows the dollar effect on your own mortgage.

Fixed vs Variable Mortgage in Canada: Which Is Better Right Now?

Choosing between a fixed and a variable mortgage often depends on current economic conditions and interest rate expectations. In the current rate environment, the right choice largely depends on a borrower’s risk tolerance.

The Bank of Canada’s October 28 hike changes the question. For most of 2024 and 2025, the case for a variable rate rested on rate cuts arriving and a borrower riding them down. Now the Bank has raised its policy rate to 2.50% and said it may need to raise it further, with inflation expected to rise to about 3.5% by the end of 2026 and stay at or above 3% through much of 2027 (Bank of Canada). Money market pricing for an increase at the December 9 meeting was close to even odds in the days after the decision, depending on the provider, and economists disagree on how many more increases follow. Choosing variable today means accepting that your rate may rise in exchange for a lower starting rate and a cheaper exit, not betting on falling payments.

Why Some Borrowers Are Choosing Fixed Rates

Many borrowers choose fixed rates when economic uncertainty is high or when they want predictable and stable payments. A fixed mortgage locks in an interest rate for the entire term, so the payment doesn’t change even if interest rates rise.

Fixed mortgages may be appealing when:

• Interest rates are expected to remain elevated for some time
• Household budgets require predictable payments
• Borrowers are approaching a renewal and want to reduce risk

Why Variable Rates Are Still Attractive to Some Borrowers

Historically, variable mortgages have often had lower long-term borrowing costs over a full mortgage cycle. However, they can be volatile in the short term when rates rise.

Variable rates may be attractive when:

• Markets expect interest rates to decline
• Borrowers want to benefit from interest savings if rates fall
• Homeowners are comfortable with payment fluctuations

The Variable-Then-Convert Strategy

Some borrowers take a variable rate intending to convert to a fixed rate later, believing fixed pricing will ease. Lenders generally let you convert a variable rate to a fixed rate mid-term at no charge, though the fixed rate you receive is the lender’s non-discounted rate, not the discounted rate offered to new borrowers. The wider gap between fixed and variable pricing in 2026 has made the strategy more visible.

The strategy carries 2 risks that are worth naming plainly. Your variable rate rises with each increase in the Bank of Canada’s policy rate, and the Bank has raised it once and says more may be needed. When you convert, you get the fixed rate your lender offers that day at its non-discounted rate, not the discounted rate you got when you signed, so the plan only pays off if fixed rates fall enough to cover that difference. Whether it suits you depends on whether your budget can absorb the increase while you wait. A payment shock calculator will show you the answer in dollars.

The Key Question: Should I Choose a Variable or Fixed Mortgage Right Now?

The real decision between fixed and variable mortgages usually comes down to how comfortable a borrower is with uncertainty. Fixed rates prioritise payment stability and certainty in budgeting. Variable rates prioritise flexibility and the possibility of lower interest costs if rates decline.

Many Canadian borrowers choose their mortgage based on their financial resilience. Those on tighter budgets may prefer the stability of fixed payments, while borrowers with more flexibility may tolerate short-term fluctuations for potential savings.

What Canadian Mortgage Experts Often Recommend

Mortgage professionals often emphasize that the best mortgage type depends on personal circumstances rather than a single market forecast. Factors that usually influence the decision to go fixed or variable include:

• Income stability
• Debt levels
• How long the borrower plans to stay in the home
• Tolerance for interest rate fluctuations

Some borrowers also choose shorter terms, such as a 3-year fixed-rate mortgage, when they expect interest rates to fall. This gives borrowers short-term payment stability and protection against rate fluctuations while they wait to take advantage of lower future rates. With the yield curve now upward-sloping, a shorter fixed term also tends to price below a 5-year fixed rate, so the choice costs less than it did during the tightening cycle.

Frequently Asked Questions (FAQ) About Fixed versus Variable Mortgage Rates

Final Thoughts

Choosing between a variable and a fixed rate depends on your risk appetite and budget. Variable rates have often cost less over a full term, but you have to weigh that against how much of an increase you can absorb, and the Bank of Canada’s October increase is a reminder that rates can move up as well as down. Some borrowers prefer the certainty of fixed payments throughout their mortgage term.

To find the most suitable mortgage solution for your borrowing situation, contact nesto mortgage experts today.

This article is a general discussion and isn’t legal, tax or financial advice. Nesto provides mortgage guidance. For advice on your situation, speak with a qualified financial advisor or tax professional.

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Why Choose nesto

At nesto, our commission-free mortgage experts are salaried and regulated, with most licensed in multiple provinces. They are evaluated on client satisfaction and the quality of their advice, and they help you compare mortgage options and understand rates and qualification requirements. Once you’re ready to move forward, they work with you on a mortgage strategy that fits your situation.

nesto pairs expert advice with a 100% digital, transparent and seamless process, and a dedicated mortgage professional supports you throughout your purchase, renewal or refinance.

nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.

Contact our knowledgeable mortgage experts to find your best mortgage rate in Canada.

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