Fixed vs. Variable Mortgage Rates in Canada: 25 Years of Data

Every Canadian who has ever signed a mortgage has faced the same question: fixed or variable?

Your bank will show you today’s rates. Your mortgage broker will have an opinion. Your uncle will tell you what he did in 1997. None of that is data.

So we pulled 25 years of Bank of Canada overnight rate history (the rate that directly drives variable mortgage pricing) and looked at what actually happened.

The Rate That Runs the Show

Before we compare anything, you need to understand one number: the Bank of Canada overnight rate. This is the interest rate at which major banks lend money to each other overnight. When the BoC raises or lowers this rate, variable mortgage rates move with it, usually within days.

Fixed rates, on the other hand, are tied to the Government of Canada 5-year bond yield, which is driven by bond market expectations about future inflation and economic growth. Fixed rates can move independently of the overnight rate, and sometimes in the opposite direction.

Here’s what the overnight rate has done since 2000:

Stare at this chart for a moment. Notice the pattern: long stretches of stability punctuated by sharp moves. The rate sat at 1.00% or below for over a decade(2009–2022), then rocketed to 5.00% in barely 16 months. That single cycle defined an entire generation of mortgage decisions.

The Scoreboard: Variable Wins Most of the Time

The historical record is clear. Looking at the period from 2000 to 2026:

• Variable rates have been lower than 5-year fixed rates roughly 80% of the time
• The average savings of variable over fixed has been estimated at 0.5%–1.0% annually over long periods
• On a $500,000 mortgage, even a 0.5% difference translates to roughly $2,500 per year in interest savings

This is the stat that variable-rate advocates love to cite. And they’re right, on average. But averages can be misleading when you’re living through the exceptions.

The Two Brutal Exceptions

Look at the chart again. There are two periods where variable-rate holders got punished:

Exception 1: The 2022–2023 Hiking Cycle

In March 2022, the overnight rate was 0.25%. By July 2023, it was 5.00%. That’s 475 basis points in 16 months, making it the fastest tightening cycle in over 40 years.

If you had a variable-rate mortgage at prime minus 1.0% in early 2022, your effective rate went from about 1.45% to 6.20%. On a $500,000 mortgage, your monthly payment (or the interest portion of it) roughly quadrupled. Meanwhile, anyone who locked in a 5-year fixed at 2.5% in 2021 was sitting comfortably for the entire ride.

Exception 2: The 2000–2001 Period

The overnight rate hit 5.75% in 2000 before the dot-com bust forced it down to 2.00% by early 2002. Variable-rate holders paid a premium during the high-rate period, though the rapid decline that followed eventually made up for it. Anyone who locked in fixed at the peak overpaid for years as rates fell.

The Lesson

Variable rates win most of the time, but when they lose, they can lose badly. The 2022–2023 cycle was a textbook example of a scenario where a fixed rate was the clear winner. But only if you locked in before the cycle started. By the time rates were clearly rising, fixed rates had already adjusted upward.

What Drives Each Rate?

The “Fixed Rate Premium”

Fixed rates are almost always higher than variable rates at the time of signing. This premium is the price of certainty. The lender is taking on the interest rate risk instead of you.

Think of it like insurance. You’re paying extra for the guarantee that your rate won’t change. And like all insurance, most of the time you’ll “lose,” meaning rates won’t rise enough to justify the premium. But when rates spike, that insurance pays off massively.

The question is whether you need that insurance or whether you can self-insure by having the financial flexibility to absorb higher payments.

Where We Are Now (April 2026)

The BoC overnight rate currently sits at 2.25%, down from the 5.00% peak in mid-2023. The Bank cut rates seven times between June 2024 and October 2025, then stopped. It has held at 2.25% for three consecutive decisions (January, March, and the next announcement is April 29).

Why the pause? Because the Bank is caught between two opposing forces.

Force 1: A weakening economy

US tariffs on Canadian exports (autos, steel, aluminum, forestry) have hammered trade. GDP contracted 0.6% in Q4 2025. Employment gains from late 2025 were largely reversed in early 2026, with unemployment climbing to 6.7% in February. Business investment has stalled because nobody knows what trade policy will look like next quarter, let alone next year. In a normal cycle, this weakness would push the Bank to cut further.

Force 2: An oil shock pushing inflation up

The US-Israel military operation against Iran in late February 2026 disrupted roughly a fifth of global crude and natural gas supply. Brent crude surged past $100/barrel for the first time since 2022. Canadian gas prices jumped about 30% from March to April. The International Energy Agency (IEA) called it “the greatest global energy security challenge in history” (IEA Oil Market Report, March 2026).

Higher oil prices create a uniquely Canadian dilemma. Canada is the world’s fourth-largest crude exporter. Rising prices boost Alberta’s economy, increase government royalties, and support GDP. But they also raise costs for consumers and businesses everywhere else. CPI inflation had fallen to 1.8% in February, but the Bank expects gasoline prices to push headline inflation back up in the coming months.

What this means for mortgage rates

Today’s market:

• Best 5-year variable rates: ~3.3%–3.5%
• Best 5-year fixed rates: ~3.9%–4.1%
• The spread: roughly 0.5%–0.7% in favour of variable

Variable rates have regained their traditional discount to fixed. But the path forward is unusually unclear. The Bank has said it will “look through” the immediate oil price spike and not hike in response, unless price increases start spreading into other goods and services. At the same time, the weak economy and tariff damage argue against further cuts.

In the Bank’s own words from the March Governing Council deliberations: it is “too early to assess the impact on the outlook.” They are holding steady and watching. This is one of those rare moments where both fixed and variable carry real, distinct risks. Variable holders face the possibility that oil-driven inflation forces the Bank to hold (or even hike) longer than expected. Fixed-rate holders risk locking in at elevated levels right before an economic slowdown forces deeper cuts.

A Framework for Deciding

Forget trying to predict rates. Instead, ask yourself these questions:

Choose variable if:

• You can handle a 2%–3% rate increase without financial stress
• You have an emergency fund covering 6+ months of expenses
• Your mortgage is small relative to your income
• You might break the mortgage early (variable penalties are much lower)
• You’re comfortable with uncertainty and won’t panic-convert to fixed at the worst possible time

Choose fixed if:

• You’re stretched on payments and can’t absorb increases
• You sleep better knowing exactly what your payment will be
• You plan to stay for the full 5-year term
• Rates are historically low and the fixed premium is small
• You’re early in your mortgage and your balance is at its highest (maximum exposure to rate changes)

The hybrid approach:

Some borrowers split their mortgage: part fixed, part variable. This gives you partial protection while keeping some upside. Not every lender offers this, but it’s worth asking about if you genuinely can’t decide.

The Biggest Mistake People Make

It’s not choosing the wrong rate type. It’s panic-switching at the worst time.

In 2022, thousands of Canadians who had variable-rate mortgages rushed to lock in fixed rates, after rates had already risen sharply. They locked in at 5%+ fixed rates right before the BoC stopped hiking and eventually started cutting. They got the worst of both worlds: they paid low-rate variable when rates were low, then locked in high when rates peaked.

If you choose variable, you need to commit to the strategy through a full rate cycle. If you’re going to bail at the first sign of rising rates, you should have chosen fixed from the start.

The Bottom Line

The data says variable wins more often than not. But “more often than not” is not “always.” The right choice depends on your financial resilience, your risk tolerance, and your ability to stay the course when rates move against you.

The best mortgage rate is the one that lets you sleep at night and doesn’t force you into bad decisions when the market gets volatile.

Want to track your mortgage payments and see how rate changes affect your amortization? Try the free mortgage tracker . It handles Canadian semi-annual compounding, renewals, and prepayments. No account required.