Variable Mortgages Are Back: Are They Worth the Risk?

After several years of volatility in Canadian interest rates, variable-rate mortgages are once again attracting attention. With variable rates now priced competitively against fixed- rate options, borrowers are asking a familiar question: Is it time to consider variable again? The answer depends less on predicting exactly where interest rates will go and more on understanding your financial position, tolerance for risk, and future plans.

Why Variable Mortgages Are Back in the Conversation
Variable mortgage rates are generally tied to a lender’s prime rate, which is influenced by changes to the Bank of Canada’s overnight rate. After the sharp rate increases experienced in 2022/2023, declining rates significantly improved the economics of variable-rate mortgages.

By 2026, the difference between variable and fixed mortgage pricing has become meaningful again. Bank of Canada data for July 2026 showed average rates on newly advanced variable mortgages of approximately 3.55% for insured mortgages and 3.95% for uninsured mortgages. Comparable fixed mortgages with terms of three to five years averaged approximately 4.19% and 4.09%, respectively.

That difference means borrowers choosing variable may begin their mortgage with a lower interest rate rather than paying a premium for the certainty offered by a fixed mortgage.

What Is the Risk?
The obvious trade-off is uncertainty. With a fixed-rate mortgage, your interest rate is guaranteed for the mortgage term. With a variable mortgage, your rate can move when your lender changes its prime rate.

There are also different types of variable mortgages. With an adjustable-payment mortgage, the payment typically changes as rates move. With certain fixed-payment variable mortgages, the payment may initially remain unchanged, but the proportion going toward principal and interest changes. If rates rise sufficiently, the borrower can eventually reach a trigger point requiring higher payments.

For this reason, borrowers considering variable should ask themselves a simple question: Could my household comfortably absorb a higher mortgage payment if rates unexpectedly increased?

If the answer is no, the certainty of a fixed rate may be worth paying for.

The Advantages of Going Variable
Variable mortgages offer more than the possibility of a lower rate. They can also provide valuable flexibility. Depending on the lender and mortgage product, variable mortgages may have more favourable prepayment penalties than fixed mortgages. This can become important if you unexpectedly sell your home, refinance, access equity, or otherwise need to break the mortgage before maturity.

Some variable mortgages also provide the ability to convert into a fixed-rate mortgage during the term, although borrowers should carefully review the lender’s conversion conditions and the fixed rate that would be offered at that time.

So, is Variable Worth the Risk?
For financially secure borrowers who have room in their budget, understand that rates can move in either direction, and value flexibility, variable mortgages deserve serious consideration again.

For borrowers with tighter monthly budgets or those who simply prefer knowing exactly what their mortgage payment will be, a fixed mortgage may remain the better choice.

Ultimately, the best mortgage isn’t necessarily the one with today’s lowest interest rate. It is the mortgage that provides the right combination of rate, flexibility, payment stability, prepayment options, and risk for your individual circumstances. Before choosing between fixed and variable, consider more than where interest rates might go. Consider where life may take you over the next three to five years.

Candace Perko, Mortgage Broker