TL;DR

If your budget is tight and stability matters more than optionality, fixed usually wins. If your cash flow has buffer and flexibility matters, variable can still be rational, especially when break-risk is high.

2026 rate context you should know before choosing

Rate decisions happen in a live policy cycle, not in a vacuum. Bank of Canada data shows the policy rate at 2.25% on the fixed announcement date of January 28, 2026.

In the Bank's posted chartered-bank table, prime rate values through February 18, 2026 are shown at 4.45%.

Why that matters: variable-rate pricing reacts to prime-linked structures, while fixed-rate pricing reflects bond market expectations and lender funding strategy. They do not move in lockstep.

Good mortgage strategy is risk-fit first, rate second.

Fixed vs variable vs adjustable variable: what actually changes

Option What usually improves What usually gets harder
Fixed rate (closed) Payment predictability and planning certainty. Break penalties can be materially higher if you exit early.
Variable rate with fixed payment Often lower initial rate and potentially lower early-break cost. Interest-cost drift and trigger-point risk if rates rise.
Variable rate with adjustable payment Cleaner amortization control because payment changes with rate. Monthly cash-flow volatility can be uncomfortable.

FCAC's mortgage guidance highlights an important nuance: with variable mortgages that keep payments fixed, rising rates can shift more of each payment to interest. At extreme points, principal reduction can stall and required payment changes may follow.

Payment path risk: model shape, not just today's quote

Most borrowers compare a fixed quote against a variable quote and stop. That is a high-risk shortcut. Model at least three paths:

  1. Base case: current payment and interest mix.
  2. Stress case: higher-rate scenario and monthly impact.
  3. Renewal case: likely payment range at next maturity window.

This single exercise usually clarifies whether you are buying certainty or borrowing stress.

fixed vs variable mortgage choice in Canada planning discussion for Canadian borrowers
Choose the payment path you can sustain during volatility, not only during calm periods.

Break penalties and flexibility: the cost many borrowers underweight

FCAC's prepayment guidance is clear: prepayment penalties can be significant, and lender calculations vary. For many closed mortgages, lenders compare three months' interest with an IRD-based amount and charge the higher value according to contract terms.

Practical implication: if your move, refinance, or life-change probability is high over the next 12 to 36 months, break-cost exposure should be weighted heavily in your fixed-vs-variable decision.

Before committing, ask your lender to show the exact penalty methodology in writing, not only a verbal estimate.

Renewal and switch reality: why structure matters at maturity

OSFI's uninsured MQR remains the greater of contract rate + 2% or 5.25% for newly underwritten uninsured files. OSFI also states it no longer prescribes the MQR for qualifying uninsured straight switches at renewal (with no increase to balance or amortization), while still expecting prudent underwriting.

What this means for borrowers: if you keep your file clean and timeline disciplined, your renewal negotiation leverage improves. If your file deteriorates near maturity, option quality can shrink quickly.

If fixed vs variable feels too binary, use this alternatives framework

Borrowers often think only two choices exist. Better planning uses alternatives

  • Alternative 1: short fixed term if you need near-term stability but do not want long lock-in.
  • Alternative 2: variable with explicit conversion plan if you value flexibility but want predefined lock triggers.
  • Alternative 3: variable with adjustable payments if you can absorb volatility and want cleaner amortization control.
  • Alternative 4: staged prepayment strategy to reduce future break-risk and improve renewal posture.

Best strategy is the one that still works when your assumptions are wrong.

Rate strategy scorecard by borrower profile

Use this to map mortgage structure to your actual behavior and budget resilience.

fixed vs variable mortgage choice in Canada documents and calculator in warm sunset light
When profile and product match, mortgage stress drops and decision confidence rises.

Common decision traps that create expensive outcomes

  • Anchoring: committing to the first rate quote without full downside modeling.
  • Present bias: overweighting today's payment relief and underweighting renewal risk.
  • Status quo bias: accepting default renewal offers to avoid friction.
  • Loss aversion: fearing the wrong risk and ignoring break-penalty exposure.

Countermove: use a written scorecard with pass/fail thresholds for payment resilience, break flexibility, and renewal optionality.

Your 21-day decision sprint

Days 1 to 7

run payment, trigger-rate, and stress-test scenarios using your real debt and cash-flow profile.

Days 8 to 14

compare fixed, variable, and hybrid alternatives with penalty assumptions and likely hold period.

Days 15 to 21

lock strategy, document lender assumptions in writing, and set review checkpoints before renewal.

Best next step

If you are choosing between fixed and variable right now, do not decide from rate headlines alone. Run your downside math first, then select the option that you can carry through a volatile year.

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