Fixed or Variable: Which Strategy is Best for 2026?

The fixed vs. variable debate is the most common question we get from clients. With the Bank of Canada signalling cautious optimism in 2026, the answer is more nuanced than ever. Here's our expert analysis.

The Current Rate Landscape

As of April 2026, the Bank of Canada's overnight rate sits at 3.75%, down from the 5.00% peak in mid-2024. Five-year fixed rates are hovering around 4.14%, while five-year variable rates are at approximately Prime – 0.90%, equating to roughly 6.10%.

That gap — nearly 2% — might seem like it makes fixed the obvious winner. But the picture becomes far more interesting when you factor in where rates are heading over the next 12-24 months.

The Case for Fixed in 2026

A fixed-rate mortgage locks your interest rate for the entire term (typically 5 years). Your payments never change, regardless of what the Bank of Canada does. This is ideal if:

• You value predictability — your monthly budget is tight, and even a $200/month increase would cause stress
• You believe rates will plateau — if you think the BoC will hold or pause cuts, locking in now captures the current discount
• You're risk-averse — the psychological comfort of a fixed payment has real value for many homeowners

The Case for Variable in 2026

A variable-rate mortgage is tied to the lender's prime rate, which moves in lockstep with the Bank of Canada's policy rate. Historically, variable-rate borrowers save money over 70% of the time over a full 5-year term. Here's why variable could pay off in 2026:

• Further rate cuts expected — most economists project 2-3 additional 25bps cuts through late 2026, which would lower variable rates significantly
• Lower penalty to break — variable mortgages typically carry a 3-month interest penalty, versus the potentially massive IRD (Interest Rate Differential) penalty on fixed terms
• Historical advantage — over any rolling 15-year period in Canadian history, variable has outperformed fixed more often than not

Our Recommendation

At West Avenue Group, we don't believe in a one-size-fits-all answer. Our advice depends on your specific situation:

A growing number of our clients are also exploring hybrid mortgage strategies — splitting their mortgage into a fixed and variable portion to diversify their interest rate risk. This is an advanced strategy that our advisors can model for you.