One of the biggest decisions homebuyers face is whether to go with a fixed or variable mortgage rate. It’s also one of the most common questions we get at PMT. The truth is, there’s no one-size-fits-all answer. Every client comes from a different financial situation, with different goals and risk tolerance. What works for your friend or neighbour may not work for you.

In today’s uncertain market, the decision is tougher than usual. While I may recommend a fixed rate for one client, I might advise another to go variable. It all depends on their unique circumstances.

In The Ultimate Guide to Choosing Fixed vs Variable, I outline five key factors to consider. 

Here, we’ll focus on the three most relevant today:

  • The Spread
  • Market Outlook
  • Risk Tolerance

 

The Spread

This refers to the difference between fixed and variable mortgage rates. Historically, variable rates are priced lower than fixed rates. But the past two years have flipped that script. Variable rates have a higher starting point than fixed, making them a tougher bet.

Starting with a higher rate means you’re already behind… and for a variable rate to come out ahead, the Bank of Canada would need to cut rates fast and significantly. While the gap has narrowed since 2024, variable rates are still slightly higher than fixed. For now.

 

Market Outlook

Here’s what the major banks are predicting for rate movements from mid-2025 to the end of 2026:

Bank Last Report Q3 2025 Q4 2025 Q1 2026 Q2 2026 Q3 2026 Q4 2026 Total Change
CIBC June 9 -0.50% N/C N/C N/C N/C N/C -0.50%
RBC June N/C N/C N/C N/C N/C N/C -0.00%
Scotia June 11 N/C N/C -0.25% -0.25% N/C N/C -0.50%
TD June -0.50% N/C N/C N/C N/C N/C -0.50%
BMO July 4 -0.25% -0.25% -0.25% N/C N/C N/C -0.75%
NBC June -0.25% -0.25% N/C N/C N/C +0.25% -0.25%

‘Last Report’ indicates when the forecast was updated. RBC, TD and National Bank (NBC) only provide the month.

Keep in mind that these are just forecasts. And forecasts can be way off.

In 2022, economists expected a total of 1.00% to 1.25% in rate hikes. We got 4.00%. One major wildcard: the war in Ukraine. Another major wildcard now? Trump.

His stance on tariffs … which now include a 50% tariff on copper, could change everything. 

Over half of Canada’s copper exports go to the U.S., so a move like that could shift our economy more than we may expect. 

The 90 day pause on tariffs that Trump implemented in April is set to expire on July 9th, however, the trump administration is now stating that new tariffs will come into effect on August 1st.  This week Trump confirmed that letters to the 150 countries named in the April list will be sent out with new rates this week. Canada is not on this list. In a CTV News interview on Friday, July 4th, US ambassador to Canada Pete Hoekstra stated that the United States won’t “just send a letter” to Canada.  “Canada is one of our biggest trading partners. We’re going to have an outline, we’re going to have a deal that’s articulated” he said. 

We’ll soon find out what this ‘articulated deal’ entails and how it could affect mortgage rates. 

Long-term forecasts are like long term weather predictions… good to know what could happen, but you don’t want to rely on them. Over a 5-year term, there are 40 scheduled rate announcements. That’s a lot of opportunities for change… and a lot of unpredictability.

This is why some buyers are asking about 3-year variable rates, thinking it’s a safer middle ground. Unfortunately, few lenders offer 3-year variables, and when they do, they’re usually priced much higher than the standard 5-year options.

 

Risk Tolerance

If the uncertainty makes you anxious, variable might not be for you. Ask yourself these questions:

  • What if the Bank of Canada cuts less than expected?
  • What if they don’t cut at all?
  • What if rates start increasing sooner than expected? 

If any of those scenarios make you uncomfortable, you’re likely better off with a fixed rate.

 

Fixed Rate: Pros and Cons

Pros:

  • Rate and payment stability.
  • Peace of mind in a volatile economy.

Cons:

Some believe rates will keep falling. But what are the odds that fixed rates will take a nosedive? 

After dropping more than 2% since their peak in October 2023, further declines are far from guaranteed. Yet, some still believe that big cuts to fixed rates are ahead of us. 

Will they fall another 2%? I wouldn’t count on it. 

Another 1%? Not likely.

What about another 0.50%? Greater chance, but I still wouldn’t count on it. I’ve said multiple times since late last year that fixed mortgage rates may not fall too much further than where they are today. 

Just keep in mind that anything can happen in the financial world. 

The uncertainty around the trade conflict has helped to keep mortgage rates down. If trade deals were reached and this tariff talk was behind us, the Bank of Canada would then shift their focus to inflation, which remains above their 2.00% target. 

As long as inflation is a concern, the Bank of Canada will not lower their rate. 

A likely scenario is that bond yields would rise accordingly, which would bring fixed mortgage rates up with them.  There is no guarantee that fixed rates will fall much farther than where they are today and certainly no guarantee that they won’t be higher in a few years. 

Are Shorter Term Fixed Mortgage Rates Still Worth Considering? 

These became popular a few years ago when rate drops seemed inevitable…  and that strategy worked. But today, betting on rates being lower in a few years more like gambling. 

For more information on choosing term length, I would suggest reading my recent blog: 

3-Year vs 5-Year Fixed: The Mortgage Shift No One’s Talking About. 

 

Variable Rate: Pros and Cons

Pros:

  • You could win if rates fall more than expected.
  • Penalties are generally lower (3 months’ interest).

 

Cons:

  • Rates are currently at a higher starting point. 
  • Greater risk in a highly uncertain environment.

When choosing a variable rate mortgage, it’s understood that your rate will float with the Bank of Canada rate. This is where the risk comes into play as anything can happen. Anyone who chose a variable rate mortgage in late 2021 and early 2022 will be the first ones to agree. It’s always easy to stay that you should have made a different choice once you know the outcome… as is common with buying and selling stocks. 

Forecasts are just educated predictions based on the information available today. But as that information changes, so will the forecasts. Uncertainty is running rampant in this world, which can make choosing a variable rate mortgage a risky bet. 

On the other hand, rates could fall further than expected, which could lead to a big win for those rolling the dice with a variable rate. But this would be a big gamble. Even the economists aren’t sure if their predictions will become reality.  While five of the big six banks are calling for more cuts from the BoC, there is no guarantee. Just as there is no guarantee that we won’t see rate hikes earlier than expected. Anything can happen, and with variable rates higher than fixed rate mortgages, the risk is elevated even further. 

 

Final Thoughts

Trying to predict mortgage rates is like trying to predict Trump’s next move. Even his advisors don’t know what he’ll do next…  and that unpredictability makes the choice between fixed vs. variable a challenging call.

Variable may still be the right choice for some, but only if you’re both mentally and financially prepared for the unknown. For everyone else, fixed may offer the certainty that today’s market doesn’t.

Still not sure? We’re here to help you walk through the decision based on your specific situation. Because that’s the only one that matters.