Variable vs. fixed mortgage in Canada: what actually makes sense right now

If you're shopping for a mortgage or coming up on renewal, you've seen two numbers that look almost identical and wondered which to pick. As of June 2026, the best 5-year fixed in Canada sits around 4.09% and the best 5-year variable around 3.35%. That 0.74% gap is real — but it isn't the whole story.

The number most people forget to look at is the penalty to break the mortgage early. For a lot of Canadians, that number swings the math more than the rate itself.

Where Canadian rates actually sit right now

The Bank of Canada held its overnight rate at 2.25% in June 2026 — its fifth consecutive hold — and signalled that further cuts aren't likely in the near term. Inflation is running around 3%, and the bank is watching it closely.

What that means for mortgages: variable rates have stabilized. The sharp drops of 2024 and early 2025 have plateaued. If you choose variable today, you're not buying into an obvious rate-cut tailwind the way you would have two years ago.

Fixed rates have come down a lot from the 2022–2023 peak near 6.49%, but they've levelled off too. The 4.09% 5-year fixed you see today is probably close to the floor unless the economy materially weakens.

Neither option is obviously better on rate alone. That's why you need to look at the second number.

The penalty most people don't calculate until it's too late

Here's the scenario nobody talks about at the signing table: what if your life changes? You change jobs. You separate. You want to sell and move cities. Your income drops and you need to refinance. These things happen — and when they do, you either keep the mortgage or you pay to break it.

With a variable-rate mortgage, the penalty is almost always three months' interest. On a $500,000 balance at 3.35%, that's roughly $4,188. Uncomfortable, but survivable.

With a fixed-rate mortgage at a big bank, the penalty is the greater of three months' interest or the Interest Rate Differential (IRD) — and the big banks calculate the IRD in a way that is genuinely hard to understand and very expensive.

They compare your contract rate to their posted rate for the remaining term, not to current market rates. The posted rate is the sticker price almost nobody actually pays. The gap between your discounted rate and that posted rate is treated as the differential, then multiplied by your balance and remaining months.

On a $600,000 mortgage with two years left, that penalty can land between $15,000 and $30,000 — versus around $6,000 on the same balance with a variable rate. (Use the calculator to see what it would be in your situation, and read how big those penalties get for the full breakdown.)

This isn't hypothetical. Canadians who locked into fixed rates in 2022 and want to refinance into today's lower rates are facing exactly this math right now.

Who should pick a fixed mortgage in 2026

Fixed makes sense if:

• You have a tight budget and need to know your exact payment every month. A 0.50% increase on a $500,000 mortgage adds about $140–$160/month to a variable payment. If that hurts, fixed is worth the premium.
• You're buying your forever home and genuinely plan to stay 5 years without refinancing — in which case the penalty clause is mostly irrelevant.
• You're maxed out on what you can qualify for and can't absorb payment volatility.

Fixed is a form of insurance: you pay a bit more for certainty. That's a legitimate trade-off — just know you're making it.

Who should pick a variable mortgage in 2026

Variable makes sense if:

• You have financial flexibility and can absorb modest payment changes.
• There's any chance you'll sell, refinance, or move in the next 3–4 years. The penalty difference alone could save you $10,000–$20,000.
• A monoline lender or credit union is offering the variable product — their penalty calculations are generally far fairer than the big banks'.
• You want to make extra prepayments to pay down principal faster without worrying about an IRD calculation.

The 0.74% gap between today's best fixed and variable is meaningful: on $500,000, that's roughly $3,700/year in interest savings if rates stay flat.

The honest answer for 2026

If your life is stable, your job is stable, and you genuinely plan to stay in the house for the full 5 years, fixed at 4.09% is reasonable. You're paying for certainty, and the current cost of that certainty is modest.

If there's any realistic chance you'll break the mortgage before 5 years — or if you're with a big bank and would face an IRD penalty — the variable rate deserves a serious look. Not because variable is always better, but because the penalty on a fixed rate can undo years of rate savings in a single transaction. (At renewal, the rules changed too — here's what happens when you renew.)

The one move that almost always pays off: before you sign anything, run your own numbers. Our penalty calculator shows exactly what breaking would cost under both scenarios. It takes 90 seconds and could save you tens of thousands.