Current Rates Comparison (March 2026)
| Rate Type |
Current Rate |
5-Year Average |
| 5-Year Fixed |
4.49-4.99% |
4.75% |
| 5-Year Variable |
Prime - 0.50% to Prime - 1.00% |
Varies with prime |
| Current Prime Rate |
5.45% |
— |
| Effective Variable |
4.45-4.95% |
— |
How Each Mortgage Type Works
Fixed Rate Mortgage
| Feature |
Details |
| Rate |
Locked for entire term |
| Payment |
Same every month |
| Based on |
Bond yields + lender spread |
| Best when |
Rates expected to rise |
| Penalty to break |
Interest Rate Differential (IRD) — can be expensive |
Variable Rate Mortgage
| Feature |
Details |
| Rate |
Changes with prime rate |
| Payment |
May vary (adjustable) or stay fixed (static) |
| Based on |
Bank of Canada rate + lender spread |
| Best when |
Rates expected to fall or stay flat |
| Penalty to break |
Usually 3 months’ interest — cheaper |
Adjustable vs Static Variable
| Type |
How It Works |
| Adjustable Rate Mortgage (ARM) |
Payment changes when prime changes |
| Variable Rate Mortgage (VRM) |
Payment stays same, but principal/interest split changes |
| Trigger rate risk |
VRM may hit trigger rate where payment doesn’t cover interest |
Variable vs Fixed Over Time
| Period |
Winner |
Savings |
| 1975-2000 |
Variable |
Significant |
| 2000-2020 |
Variable |
~$20,000+ on average mortgage |
| 2020-2022 |
Fixed |
Variable caught up later |
| 2022-2024 |
Fixed (temporarily) |
Variable suffered during rate hikes |
| Long-term (25+ years) |
Variable |
Historically wins majority of periods |
The Research
| Study |
Finding |
| Dr. Moshe Milevsky (York University) |
Variable wins ~90% of historical 15-year periods |
| Bank of Canada analysis |
Variable typically 0.5-1% lower over full terms |
| Real-world caveat |
Past performance doesn’t guarantee future results |
Payment Comparison Example
$500,000 Mortgage, 25-Year Amortization
| Scenario |
Fixed (4.75%) |
Variable (4.50%) |
| Monthly payment |
$2,841 |
$2,778 |
| Monthly savings |
— |
$63 |
| Annual savings |
— |
$756 |
| 5-year savings |
— |
$3,780 |
If variable rate stays 0.25% lower throughout term.
If Rates Drop 1% During Term
| Scenario |
Fixed (4.75%) |
Variable (drops to 3.50%) |
| Monthly payment |
$2,841 |
$2,498 |
| Monthly savings |
— |
$343 |
| Annual savings |
— |
$4,116 |
If Rates Rise 1% During Term
| Scenario |
Fixed (4.75%) |
Variable (rises to 5.50%) |
| Monthly payment |
$2,841 |
$3,070 |
| Monthly difference |
— |
+$229 |
| Annual extra cost |
— |
$2,748 |
Pros and Cons
Fixed Rate Mortgage
| Pros |
Cons |
| Payment certainty |
Historically costs more |
| Budget easily |
Expensive to break (IRD penalty) |
| Peace of mind |
No benefit if rates drop |
| Protected from rate hikes |
Locked in if better rates appear |
Variable Rate Mortgage
| Pros |
Cons |
| Historically lower cost |
Payment uncertainty |
| Cheap to break (3 months interest) |
Stress during rate hikes |
| Benefits if rates drop |
Trigger rate risk (VRM) |
| Flexibility |
Budgeting more difficult |
Decision Framework
Choose Fixed If…
| Factor |
Why Fixed |
| First-time homebuyer |
Need payment predictability |
| Tight budget |
Can’t handle payment increases |
| High anxiety about money |
Sleep-at-night factor |
| Rates at historic lows |
Lock in before increases |
| Planning major life changes |
Stability during transition |
Choose Variable If…
| Factor |
Why Variable |
| Comfortable with risk |
Can handle fluctuations |
| Strong emergency fund |
Buffer for payment increases |
| Might move/refinance |
Cheaper penalty to break |
| Rates expected to fall |
Benefit from decreases |
| Higher income stability |
Can absorb increases |
Breaking Your Mortgage
Penalty Comparison
| Mortgage Type |
Typical Penalty |
| Variable |
3 months interest (~$5,000-8,000 on $500K) |
| Fixed |
Greater of 3 months interest OR IRD |
| Fixed (IRD example) |
Can be $15,000-30,000+ |
When You Might Break
| Situation |
Consider |
| Selling home |
Penalty unavoidable |
| Refinancing for better rate |
Calculate if savings exceed penalty |
| Accessing equity |
HELOC might be alternative |
| Relationship breakdown |
May need to refinance |
Hybrid Options
Split Mortgages
| Feature |
Details |
| How it works |
Part fixed, part variable |
| Example |
50% fixed, 50% variable |
| Benefit |
Hedge your bets |
| Drawback |
Complexity, may limit rate shopping |
Convertible Mortgages
| Feature |
Details |
| Start variable |
Can convert to fixed anytime |
| No penalty |
No cost to convert |
| Rate on conversion |
Current fixed rate at that time |
| Strategy |
Start variable, convert if rates spike |
2026 Rate Outlook
| Factor |
Impact |
| Bank of Canada policy |
Rate cuts expected to continue |
| Inflation |
Trending toward target |
| Economic growth |
Moderate |
| Variable outlook |
May benefit from falling rates |
| Fixed outlook |
Currently attractive levels |
Rates are unpredictable. This is not financial advice.