For the past two years, the debate surrounding a fixed versus variable mortgage rate felt like it had an obvious answer. Rates were falling, the Bank of Canada was cutting aggressively and anyone who locked in a five-year fixed rate in 2023 or 2024 was quietly kicking themselves by the time 2025 rolled around.

That story is over. And, if in the next six months you’re renewing or getting a new mortgage, you need to understand why the calculus looks meaningfully different today than it did even 12 months ago.

The ‘rate-cut era’ has officially closed, for now

The Bank of Canada cut its overnight rate seven times between mid-2024 and early 2026, bringing it down to 2.25 per cent from five per cent. For variable-rate holders, that was a gift. Monthly payments dropped, equity grew faster and the "variable wins in the long-run" crowd was vindicated, at least temporarily.

But the cutting cycle is done, at least for now. The bank is widely expected to hold at 2.25 per cent for the near future, and several major economists are now calling for potential rate hikes in the second half of 2026. The Iran conflict has driven oil prices close to $100US per barrel, bond yields have jumped by 35 to 40 basis points since the spring, and Canada's headline inflation has already ticked back up to 2.8 per cent.

The "wait and see" era that borrowers enjoyed on the way down now carries real risk on the way back up.

What does that mean for fixed rates right now?

The bond market, which is usually what determines where rates are going, has been sending a clear signal: Five-year government of Canada bond yields are expected to rise from around 2.80 per cent at the start of 2026 to potentially in the high three-per-cent range by year-end.

In plain language: Fixed rates are most likely heading higher, not lower. As of early June, the best five-year fixed rates available through brokers are sitting in the low four-per-cent range. That number is likely to inch up, not down, over the coming months, unless the Iran war ends faster than expected.

If you are waiting for fixed rates to fall back to three per cent before you pull the trigger, you may be waiting for a train that is not coming.

The honest case for variable right now

I want to be fair here because the variable side still has genuine merit for the right borrower. Variable rates are currently sitting in the mid three-per-cent range, meaningfully cheaper than fixed. If the Bank of Canada holds through to year-end, and if the Iran situation de-escalates and energy prices soften, that spread is money in your pocket month-over-month.

The variable argument also still works if you have a shorter horizon. Buying a property, you plan to sell or refinance in two to three years? You probably do not want to be locked into a five-year fixed with a potentially ugly penalty if you need to break it early.

The pros: Lower payments today. Real savings if rates stay flat or fall.

The cons: You are essentially betting that the bank does not hike. And based on market volatility, nobody has a crystal ball.

My take: Variable still works for disciplined borrowers with the cash flow to absorb volatility. If you would lose sleep over a $300-per-month increase over six months, variable is not the right product for you right now.

The honest case for fixed right now

Locking in a fixed rate today means you know exactly what your payment will be for the next two, three or five years. In a market where hikes are back on the table and geopolitical shocks are genuinely unpredictable, that certainty has a real dollar value, even if you cannot put a number on it. The argument for a shorter fixed term, two or three years rather than five, is also worth considering seriously. A three-year fixed allows you to ride out the current uncertainty and potentially catch a better rate environment by 2029, without the exposure of a fully open variable.

The pros: Payment certainty. No exposure to hike risk. Peace of mind, which is underrated as a financial benefit.

The cons: If rates fall faster than expected, say, a sharp global recession in 2027, you are locked in above market, and breaking a fixed mortgage has significant penalties.

My take: For most Canadians renewing or buying right now, a two or three-year fixed is the sweet spot. You get stability without committing to a full five years in a rate environment that remains genuinely uncertain. I’m renewing in August and taking a three-year fixed.

The question nobody asks but should

Before you decide between fixed and variable, ask yourself one more question: What is the penalty to break this mortgage if my circumstances change?

Variable-rate penalties are typically three months of interest, straightforward and predictable. Fixed-rate penalties are calculated using the "Interest Rate Differential," which at some lenders can add up to tens of thousands of dollars if rates have moved significantly since you signed.

A 4.1-per-cent fixed rate from a major bank with a punishing IRD penalty is not the same product as a 4.1-per-cent fixed rate from a monoline lender with a fair break clause. The rate is the same. The mortgage is not. A good mortgage broker will walk you through that comparison before you sign anything. If they are not bringing it up unprompted, ask.

The bottom line

The fixed versus variable debate is not a math problem with one right answer. It is a risk-tolerance conversation that looks completely different today than it did in 2024.

If you are renewing in the next six months: Start the conversation now. Lock in a rate hold at today's levels while you shop, because fixed rates have an upward bias between now and year-end.

If you are buying: Do not let the variable discount seduce you if your budget cannot handle volatility. The spread between fixed and variable has narrowed considerably, and the risk profile of variable has shifted.

Either way: Get a second opinion before you sign and reach out to a mortgage brokerage to ensure you are getting your best option. The difference between the right mortgage and the convenient mortgage could easily be worth $10,000 to $15,000 over your next term. The rate environment has changed. Make sure your decision reflects that.