Posted On Jan 08, 2026

As we start 2026, many homeowners with variable-rate mortgages are revisiting a familiar question:

Should I stay variable, or should I lock into a fixed rate now?

For much of last year, it was widely assumed that rates would continue to fall — and that variable-rate borrowers would naturally benefit from that. While the prime rate has come down meaningfully from its peak, fixed mortgage rates have not followed at the same pace.

Looking ahead, rate forecasts for 2026 begin to diverge. Some major banks see the possibility of modest rate increases, while others expect rates to remain on hold through 2026 and beyond. What’s consistent across forecasts is that further meaningful rate cuts are no longer widely expected. For borrowers, this means that banking on variable rates continuing to fall — or on fixed rates dropping enough to “lock in later” — may not play out as hoped. We appear to be entering a more stable, but not permanently lower, rate environment, where variable-rate relief is largely behind us and fixed rates may gradually face upward pressure over time.

This divergence has changed the decision-making framework. 

Where rates stand today

  • Bank of Canada policy rate: 2.25%

  • Prime rate: 4.45%

Many variable-rate holders are currently paying Prime minus a discount (avg discount is about 0.50% → for a net current rate of 3.95%), which is still lower than today’s fixed-rate options (which are currently ranging from 4.10% to 4.50% on 5yr terms depending on the loan-to-value (LTV))

That reality leads to an important point:

Choosing between variable and fixed is no longer about chasing the lowest rate.

 

Why the original “wait and lock later” strategy has become harder

Many borrowers originally chose variable with the idea that:  “Once fixed rates fall enough, I’ll lock in.”

What we’ve seen instead is:

  • Prime rates came down

  • Variable rates followed

  • Fixed rates stayed relatively sticky

As a result, locking into fixed today often means locking in at a higher rate than variable, which forces a different question:

Are you locking in because you believe rates will rise — or because you want certainty?

Those are very different reasons.

 

When staying variable can still make sense

Staying variable may be appropriate if:

  • Your cash flow can absorb fluctuations

  • You’re comfortable with uncertainty

  • You value flexibility

  • You believe rates will pause or move gradually

Flexibility is a key advantage here. Variable mortgages typically come with much lower penalties (often three months’ interest) if you need to sell, refinance, or restructure.

When locking into fixed may be the better fit

Locking into fixed can make sense if:

  • Payment certainty is important

  • Rate volatility would create stress

  • Budget predictability matters more than optimization

  • You believe rates could trend higher over time

Peace of mind is a valid reason - even if the fixed rate is higher today.

 

The real decision

The decision between variable and fixed should be based on:

  • Your financial situation

  • Your risk tolerance

  • Your future plans

  • Your comfort with uncertainty

Not on headlines — and not on rate comparisons alone.

If you’re unsure, a short conversation can often bring clarity.

Let's connect!

Ready to discuss your home ownership goals and a Better Mortgage by Dom?

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