Fixed or Variable at Renewal in 2026?

Not because variable is wrong. Variable has been cheaper roughly 80% of the time historically, and that record is real. But right now, protection matters more than squeezing out a few thousand dollars over a three-year term.

Here is the quick picture on rates as of April 2026. Three-year fixed sits around 3.89%. Variable rates with competitive discounts of Prime minus 0.90% to 1.10% put effective rates between 3.65% and 3.85%. If the Bank of Canada delivers two more 25-basis-point cuts, variable is better in the short term. But that is a forecast.

Your mortgage is not a prediction game. It is a risk management decision.

The real question is not which rate wins on average. It is what happens to your household if you are wrong. And inflation today is real given oil prices — a few experts expect rates to go up, not down.

The Bank of Canada has cut the overnight rate seven times since June 2024, bringing it from 5.00% to 2.75%. That pulled variable rates down significantly. Prime is currently 4.95%, and competitive variable discounts put effective rates between 3.65% and 3.85%.

Fixed rates run on a different engine. They follow bond yields, not Bank of Canada decisions. Bond yields have been moving sharply due to inflation data, tariff uncertainty, oil prices, and global instability. That is why the three-year fixed sits around 3.89% while the five-year is closer to 4.09% to 4.19%.

One signal worth noting: the three-year fixed has been consistently 15 to 25 basis points cheaper than the five-year. That pricing tells you the bond market expects rates to be lower in a few years. But expectations are not guarantees. The last four years produced several outcomes that no consensus forecast predicted.

Variable has been cheaper about 80% of the time over the past 30 years in Canada. I have recommended it many times and would again in a different environment.

But I have also seen what happens when borrowers choose variable based on averages and face an environment the averages did not capture.

During the rate hiking cycle, I worked with a family who had purchased an investment property and chose variable because the historical record seemed to justify it. They modeled for a 1% to 1.5% increase over their term, which felt conservative based on everything that had come before.

Rates moved faster and further than anyone expected. Within two years their payments had jumped well beyond what they had stress-tested for. Cash flow on the investment property disappeared. They were stuck: fixing meant locking in at elevated rates, selling meant absorbing a hit they had not planned on.

They sold the investment property. Not because they wanted to. Because it was the only way to protect their primary home and get through the pressure.

That is what “being wrong” looks like in a worst-case scenario. Most rate comparisons do not include that part.

The three-year fixed is the most interesting option in the current market for one reason: it is cheaper than the five-year while still providing protection.

You are not committing to five years of certainty at a higher rate. You are buying three years of predictability at a rate that already prices in some expected Bank of Canada easing. If rates fall meaningfully over the next two years, you are positioned to capture that improvement at your next renewal without having overpaid significantly in the interim. If rates rise, you are covered.

That is a reasonable position in an environment where neither direction is certain.

If you take a variable-rate mortgage with fixed payments (called a VRM), your payment amount stays the same even when Prime changes. That sounds comforting — until rates rise far enough that your fixed payment no longer covers the interest.

That threshold is your trigger rate. Once you hit it, your mortgage balance starts growing instead of shrinking, because every payment goes entirely to interest with nothing left for principal. If rates continue rising, you hit a trigger point — where your lender forces a payment increase or demands a lump sum.

This hit roughly 800,000 Canadian borrowers during the 2022–2023 hiking cycle. Most saw their amortizations extend silently from 25 years to 35, 40, or even 60+ years.

Yes. Most lenders allow you to convert from variable to fixed at any point during your term without penalty. It is one of the built-in safety valves of a variable mortgage.

The catch: you lock in at the lender's current posted fixed rate for either the remaining term or a new term. This is typically not the discounted rate you would get by shopping around. The conversion rate is usually 0.20% to 0.50% higher than what a broker could negotiate for you on a new deal.

People approach fixed versus variable like a debate to be won. That framing produces bad decisions.

The goal is not picking the cheapest rate in hindsight. The goal is choosing a structure you can live with when the environment does not cooperate with your forecast.

As From Debt to Zero states in Chapter 1: “The lowest rate is not the lowest cost.” It is also not always the best decision. A rate that saves $3,000 but creates anxiety every time the Bank of Canada meets is not clearly better than a rate that costs a bit more and lets your household operate without that variable.

The real question is whether your financial life can handle being wrong.

If the answer is no, fixed is the right choice. If the answer is yes — and you genuinely understand what you are accepting — variable can work.

Base that answer on your actual cash flow, your real plans for the property, and your honest capacity to absorb surprises. Not on averages, not on what worked for someone else, and not on what rates did in the decade before 2022.