🎯 What mortgage can you afford?
Calculate your borrowing capacity in 2 minutes
Calculate my capacity →Choosing between a fixed rate and a variable rate is one of the most important decisions when taking out a mortgage. In February 2026, the Bank of Canada (BoC) is maintaining its policy rate at 2.25% for a 2nd consecutive pause, after a rate-cutting cycle that began in mid-2024. This creates an unusual gap between fixed and variable rates — and new opportunities for borrowers.
📊 Rate Context in 2026
After reaching 5% in 2023, the policy rate was gradually reduced by the BoC during a rate-cutting cycle in 2024-2025. It is now stable at 2.25%. This has a direct impact on both types of mortgage rates.
2.25%
BoC Policy Rate
3.69%
5-Year Fixed
3.35%
Variable (prime - discount)
💡 Key point: the 5-year fixed rate is based on the 5-year government bond yield, while the variable rate directly follows the BoC policy rate. Currently, the variable rate is 0.34 points lower than the fixed rate.
🔒 Fixed Rate: Pros and Cons
The 5-year fixed rate at 3.69% locks in your payment for the entire term. No surprises, regardless of what the BoC does.
✅ Pros
Stable and predictable payment
Protection against rate increases
Easy to budget
Ideal for first-time buyers
❌ Cons
Costly early repayment penalty (interest rate differential)
Higher rate than variable currently
Does not benefit from future BoC cuts
Reduced flexibility in case of sale
⚠️ Caution: the early repayment penalty on a fixed-rate loan is calculated using the interest rate differential (IRD), which can represent $10,000 to $25,000 depending on the balance and time remaining in the term.
📉 Variable Rate: Pros and Cons
The variable rate at 3.35% fluctuates with the BoC policy rate. Two versions exist: variable payment (the amount changes) or fixed payment (only the principal/interest split changes).
✅ Pros
Lower rate currently (-0.34 pts)
Automatically benefits from BoC cuts
Penalty = only 3 months of interest
More flexible in case of sale or refinancing
❌ Cons
Risk of increase if the BoC raises rates
Payments can increase (variable version)
Budget uncertainty in the medium term
Psychological stress for some borrowers
💡 Tip: a variable-rate mortgage with fixed payments is a good compromise. Your monthly payment stays constant, but the proportion allocated to interest varies. Be careful however of the “trigger rate” if rates rise significantly.
🔮 3 Bank of Canada Scenarios
The future of the policy rate will determine which type of mortgage is most advantageous. Here are three scenarios for a $500,000 mortgage over 5 years (25-year amortization):
| Scenario | Policy Rate | Fixed Cost (5 yrs) | Variable Cost (5 yrs) | Winner |
|---|---|---|---|---|
| Drop to 2.00% | 2.00% | $84,200 | $75,400 | Variable |
| Status quo 2.25% | 2.25% | $84,200 | $78,500 | Variable |
| Rise to 3.00% | 3.00% | $84,200 | $91,800 | Fixed |
✅ Result: in 2 out of 3 scenarios, the variable rate wins. However, if the BoC raises rates to 3%, the fixed rate protects against a loss of nearly $7,600 over 5 years. The risk depends on your tolerance.
👤 What Type of Borrower Are You?
🔒 Choose fixed if…
Your budget is tight
It is your first home
You are risk-averse
You prefer peace of mind
You do not plan to sell before 5 years
📉 Choose variable if…
Your income is flexible or high
You tolerate risk
You believe in future BoC cuts
You can absorb a payment increase
You might sell or refinance before the term ends
🔀 The Hybrid Strategy
A hybrid mortgage splits your loan into fixed and variable portions. For example, 60% fixed / 40% variable or 70 / 30. You benefit from the security of the fixed rate on the majority of your loan, while taking advantage of the lower variable rate on the rest.
✅ Pros: risk distribution, partial savings on the variable rate, more stable payments than 100% variable
❌ Cons: less common in Quebec, not all lenders offer it, more complex management
💡 Advice: a mortgage broker can help you structure a hybrid mortgage tailored to your situation. It is a little-known strategy that offers the best of both worlds.
📋 Summary: Fixed vs Variable
| Criteria | 🔒 5-Year Fixed | 📉 Variable |
|---|---|---|
| Current rate | 3.69% | 3.35% |
| Payment ($500K) | $2,690/mo | $2,610/mo |
| Stability | Guaranteed 5 years | Fluctuates with BoC |
| Early repayment penalty | Differential (costly) | 3 months interest |
| If BoC cuts | No benefit | Rate decreases |
| If BoC raises | Protected | Rate increases |
| Ideal profile | Cautious, 1st buyer | Risk tolerant |
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