The Bank of Canada has signalled it's moving into a prolonged rate hold.DARRYL DYCK/The Canadian Press
After a few tumultuous years for the economy, mortgage shoppers could finally see some stability in 2026. With the Bank of Canada signalling it’s settled into a prolonged rate hold, there isn’t any movement on the horizon for variable mortgage rates.
The bad news is that borrowers shouldn’t expect further rate discounts. But now that we’re at the tail end of the central bank’s nine cumulative rate cuts – between June, 2024, and October, 2025 – the benchmark borrowing rate has dropped by 275 basis points, leaving the prime rate at 4.45 per cent. (There are 100 basis points in a percentage point.)
That means the lowest variable mortgage rates in Canada are priced around the 3.4-per-cent mark. That’s the most attractive pricing since the summer of 2022 – and a good place for variable-rate borrowers to hunker down.
As long as the economy meets central bank expectations – with inflation remaining close to its 2-per-cent target and businesses continuing to adjust to new export and trade realities – this rate hold will be in place until at least the latter end of 2026.
After that, rates could move higher. Economists’ consensus is that the economy will likely firm up by 2027, and, should inflation rise, the BoC could start hiking rates.
Variable-rate mortgages are making a comeback, but some economists are already predicting rate hikes
For now, though, variable mortgage rates are the cheapest option, and will be for the majority of 2026, as volatility in the bond market could keep fixed rates elevated.
Currently, there’s a 49-basis-point spread between the lowest five-year fixed and variable terms. That’s already enough to dissuade borrowers from locking in, and variable options will become more popular should fixed rates tick higher.
For anyone shopping for a mortgage, variable rates may seem the obvious choice, but going with a market-linked borrowing product requires some appetite for risk and a forward-looking strategy.
First, if you are serious about going variable, it’s important to secure a rate hold, or seek out a full preapproval as soon as you can. That’s because in a long-term lower rate environment, lenders often increase the spread between their rate prices and the prime rate to preserve profit margins. Securing your rate now will guarantee access to your lender’s current spread, even if they raise it later.
The type of variable rate you take out also matters. Since rates are expected to hold for roughly a year and then increase, you want a flexible mortgage product that allows for changes down the road. This includes the ability to convert your rate to a fixed-rate option when rates do rise, without it being considered a refinance and incurring the fees that come with breaking your mortgage.
You may also benefit from a fully adjustable-rate mortgage, where your rate and payment size correspond directly to changes in the prime rate, rather than a variable-rate mortgage with a fixed payment.
With the latter, your payment remains the same throughout the term, but the portion of it going toward your principal debt decreases when rates rise, with more servicing interest.
While this type of variable mortgage offers borrowers payment predictability and makes it easier to budget, they run the risk of hitting what’s called the “trigger rate” – when the payment is only enough to cover interest – should rates spike dramatically. This happened to many borrowers during the BoC’s 10-part hiking cycle in 2022 and 2023.
Though it’s unlikely that rates will rise to such a drastic degree in the next two years, you never know. Sticking with an adjustable option means you see changes to your rate immediately and react accordingly.
It’s also a smart strategy to take advantage of temporarily lower variable rates by paying off a greater chunk of your mortgage faster, so you have a smaller home loan when rates do rise.
Look for products that allow you to make lump-sum payments, or accelerate to making payments every two weeks. Most lenders will offer between 15 per cent and 20 per cent in terms of prepayment privileges – anything over 25 per cent is exceptional.
If you’re in the financial position to do so, it’s a great way to reduce the amount of interest you’ll pay over time on your mortgage, and you’ll be well positioned to weather future interest-rate hikes. Your 2027 self will thank you.
Penelope Graham is the head of content at Ratehub.ca.
