Fixed or Variable? How to Choose a Mortgage After the September Rate Hold
The fixed vs. variable mortgage decision in Canada in 2026 looks different after the Bank of Canada’s September 2 announcement. The Bank held its policy rate at 2.25% for the seventh time in a row, which keeps variable rates where they have been since October 2025. But the Bank also said upside risks to inflation have increased, and bond yields that drive fixed rates have moved up, according to its September 2, 2026 press release. Choosing between the two now comes down to how much payment movement you can absorb and how long you plan to keep the mortgage.
- Current rates: The Bank of Canada held its policy rate at 2.25% on September 2, 2026, and the prime rate at chartered banks remains 4.45%.
- Fixed vs. variable: A fixed mortgage rate stays the same for the entire term, while a variable rate moves up or down with changes to the lender's prime rate.
- Market trends: Fixed mortgage rates have moved higher alongside bond yields, while the Bank of Canada's recent comments have placed greater emphasis on inflation risks, which is especially important for variable-rate borrowers.
- Cost of rate increases: Every 0.25 percentage-point increase in a variable mortgage rate adds approximately $1,250 per year in interest costs for every $500,000 borrowed, before amortization effects are considered.
- Breaking your mortgage: Variable-rate mortgages often come with lower prepayment penalties, which can be an advantage if you may sell your home or refinance before the end of your term.
- Mortgage qualification: The mortgage stress test applies the same way to fixed and variable mortgages. Uninsured borrowers must qualify at the greater of the contract rate plus 2% or 5.25%.
Where Rates Stand After the September Hold
The policy rate is 2.25%, the Bank Rate is 2.5%, and the deposit rate is 2.20%. The prime rate at chartered banks, which sets most variable mortgage rates, has been 4.45% since the Bank’s October 2025 cut, according to Bank of Canada data.
Fixed rates tell a different story. The five-year Government of Canada bond yield was 3.14% on July 15 and 3.42% on September 2, 2026, based on Bank of Canada bond yield data. The Canadian Real Estate Association (CREA) said in its August housing report that fixed mortgage rates have already increased on higher bond yields, and that on the variable side, a rate hike is back on the table for this year and already priced in by markets.
Fixed vs. Variable Mortgage in Canada 2026
There are three main types of mortgages in Canada. A fixed rate mortgage maintains the same rate for the entire term and is usually higher than a variable rate for a similar term. A variable rate mortgage can rise or fall during the term. Variable mortgages come with either adjustable payments, which change when the rate changes, or fixed payments, where the payment stays the same and the split between interest and principal shifts instead.
| Feature | Fixed Rate | Variable Rate, Adjustable Payment | Variable Rate, Fixed Payment |
|---|---|---|---|
| Rate during the term | Stays the same | Moves with prime | Moves with prime |
| Payment during the term | Stays the same | Rises or falls with the rate | Stays the same |
| What changes when rates rise | Nothing until renewal | Your payment goes up | More of each payment goes to interest |
| Typical prepayment penalty | Usually the higher of three months' interest or the interest rate differential (IRD) | Often three months' interest | Often three months' interest |
| Best fit | Borrowers who want a predictable payment | Borrowers with room in their budget for potential payment changes | Borrowers who want a steady payment but can accept slower principal paydown if rates rise |
A fixed-payment variable mortgage can be riskier than it looks. If rates rise far enough, none of your payment may go toward principal, and the amount you owe can grow. Some lenders also offer a hybrid mortgage, with part of the balance at a fixed rate and part at a variable rate.
What the September Rate Hold Tells You
A hold is neutral on its own. The wording around it is not. The Bank said the Governing Council is prepared to adjust monetary policy as needed, and its summary of deliberations said that if higher energy prices spread into other consumer prices, that could require a policy response. The Bank has not said it will raise rates. It has made clear that the risk is no longer one-sided toward cuts.
For a variable-rate borrower, that means planning for the possibility of a higher payment. For a fixed-rate borrower, it means the rate you lock in today already reflects some of that expectation, since bond markets price in expected rate moves.
Should I Get a Variable Rate Mortgage? Questions to Consider
Work through these in order before you choose:
- Calculate how much your payment would rise if prime went up by 0.25 or 0.50 points, and decide whether your budget could absorb it.
- Consider how long you expect to keep the home and the mortgage, since breaking a fixed term early can cost far more in penalties.
- Check your savings cushion, because a variable mortgage works best when an emergency fund can cover a few months of higher payments.
- Ask whether your lender lets you convert to a fixed rate mid-term, and on what terms. REMAX Canada explains locking in a variable rate mortgage.
- Confirm you qualify under the stress test at the higher of your contract rate plus 2% or 5.25%, the minimum qualifying rate set by OSFI for uninsured mortgages.
- Decide which matters more to you: a predictable payment or the chance of paying less interest if rates fall.
What a Rate Increase Would Cost
The simple way to size variable-rate risk is to multiply your balance by the size of the increase. The table below shows the approximate extra interest in the first year after an increase.
| Mortgage Balance | Extra Interest From a 0.25-Point Increase | Extra Interest From a 0.50-Point Increase |
|---|---|---|
| $300,000 | About $750 a year (about $63 a month) | About $1,500 a year (about $125 a month) |
| $500,000 | About $1,250 a year (about $104 a month) | About $2,500 a year (about $208 a month) |
| $700,000 | About $1,750 a year (about $146 a month) | About $3,500 a year (about $292 a month) |
Actual payment changes depend on your lender, amortization period and payment type.
Prepayment Penalties
A prepayment penalty is usually the higher of three months’ interest or the interest rate differential (IRD), and lenders usually use the IRD when your rate is higher than current rates and you signed less than five years ago. Variable-rate penalties are often limited to three months’ interest.
If there is a real chance you will sell, move or refinance before your term ends, that difference can outweigh a small rate advantage. REMAX Canada covers the options in selling your home before your mortgage term ends.
A Quick Decision Guide
| If This Describes You | Fixed May Suit You Better | Variable May Suit You Better |
|---|---|---|
| Your budget is tight | Yes. Payments cannot rise during the term. | Only with a fixed-payment variable mortgage and a clear financial cushion. |
| You may sell within the term | Consider the potential penalty risk carefully. | Yes. Penalties are often lower. |
| You want payment certainty through 2027 | Yes. | No. |
| You have savings to absorb higher payments | Either option may work. | Yes, if you are comfortable with rate risk. |
| You expect to renew or refinance soon | A shorter fixed term may be worth considering. | Yes. It is often easier and less costly to exit early. |
Get Advice Before You Sign
The right mortgage depends on your finances, your plans and your comfort with risk, and a mortgage professional can model both options with real quotes. A REMAX agent can help you set a purchase price that works under either scenario and connect you with local lenders and brokers. Contact a REMAX agent to start with a plan that fits the 2026 rate environment.
Should I Get a Variable Rate Mortgage in 2026?
A variable rate can make sense if your budget can absorb higher payments, you may sell or refinance before the term ends, or you value lower prepayment penalties. With the Bank of Canada's September 2026 messaging highlighting increased upside risks to inflation, borrowers who prioritize payment certainty may be more comfortable with a fixed-rate mortgage.
Is Fixed or Variable Better in Canada Right Now?
Neither option is universally better. As of September 2026, prime remains at 4.45% and has not changed since October 2025, while fixed mortgage rates have increased alongside bond yields. The right choice depends on your tolerance for payment fluctuations, your financial goals and how you would manage a future rate increase.
Can I Switch From a Variable to a Fixed Rate?
Many lenders allow borrowers to convert a variable-rate mortgage to a fixed-rate mortgage during the term. The rate offered is based on the lender's current fixed-rate products at the time of conversion, not the rates available when the mortgage was originally signed. Before making the switch, review your mortgage agreement and ask your lender about any fees, restrictions or minimum term requirements.
What Happens to My Variable Rate if the Bank of Canada Raises Rates?
Lenders typically adjust their prime rates following a Bank of Canada rate increase, and variable mortgage rates move with prime. If you have an adjustable-payment variable mortgage, your payment amount will increase. If you have a fixed-payment variable mortgage, your payment stays the same, but a larger share of each payment is directed toward interest and less toward principal repayment.
