Prime rates have dropped, and many Canadians are wondering which term to choose.
We'll help you weigh the recent trends, risks, and potential savings to decide if a variable mortgage rate makes sense for you this year.
Recently, more Canadians are turning to variable-rate mortgages that adjust with the prime rate. This rate comes with potential risks if rates rise, but the savings benefits grow when rates are in a decline cycle.
But should you choose it? Amid economic uncertainty resulting from U.S. trade disruption, home buyers and owners are weighing their rate choices carefully this year:
Let's explore the potential for variable-rate mortgage savings over your next term.
Unless you've been up in the attic doing some home maintenance, you're likely aware that Canada is in the midst of a trade war with the U.S.
Read more about U.S. President Trump's trade impact on the path of mortgage rates, and be sure to keep up with real-time forecasts in our 2025-2030 Rate Forecast blog.
Canada's prime rate dropped again in October 2025 by 0.25% to 4.45%, with rate forecasts indicating a pause in further rate cuts that could last through much of 2026, and the potential for a rate hike later in 2026 if inflation heats up.
These forecasts, however, depend heavily on the outcome (or ongoing uncertainty) of trade negotiations with the U.S.
Variable rates are typically lower than fixed rates on any given day, and carry some 'historical' savings weight, making them a favoured choice for less risk-averse mortgage borrowers.
Despite this rate type increasing by the equivalent of 19 rate hikes (0.25% increments) from March 2022 to June 2024 — a post-pandemic anomaly that brought rates to a 22-year high — their decline back to 'normal' levels has shifted the narrative back to the benefits of this rate type.
Here are some variable-rate benefits:
True North Mortgage CEO Dan Eisner agrees with many economists that the prime rate will only fall again in 2026 if Canada enters a recession, or trade impacts growth more substantially than is currently showing.
There are a lot of 'ifs' and 'ands' right now, and rate forecasts are subject to change, as economic conditions remain volatile.
When you choose a variable rate, you'll notice it's expressed as a reduction off the prime rate (e.g. P -0.85%).
This discount off prime is how lenders compete for your mortgage dollars, and it can vary among lenders. The size of a discount offered to a borrower can depend on mortgage application details, such as income source and credit score, and on whether the mortgage is insured or uninsured.
A word of warning that a bigger discount may hide other costs that are charged to make up for a 'low-rate' deal, like a more expensive monthly vs. semi-annual compounded rate.
Once you lock into a variable-rate mortgage, your discount doesn't change.
Your mortgage rate itself will rise or fall along with prime rate movements. But the discount itself remains intact.
Yes, a lender may change its lowest advertised discount for a 5-year variable rate at any time, though it's usually market-dependent — for example, if the economy worsens, lenders may reduce their discount to address rising operating costs.
If you get a rate hold, your discount is usually safe during the specified hold period (which can differ by lender).
Yes. But in fact, this normal spread relationship has only just returned. When prime rates rose to a 22-year high between 2022 and 2024, variable rates were above fixed rates, which is an unusual state (we called it the rate upside-down).
Variable rates are usually lower than the 5-year fixed rate by a spread of 0.25 to 1.0%. During the pandemic, this spread increased to around 1.5%.
A 'normally' lower variable rate compared to a fixed rate is one reason homeowners choose this rate type to save.
Here's how much you might save on monthly payments by choosing a variable rate of 3.60% (P- 0.85%) now vs. locking into a 5-year fixed rate of 3.99%:
Note: Assuming a $500K mortgage and 25-year amortization. The above numbers are for illustrative purposes only and don't include principal savings; please speak with an expert True North broker for your specific numbers. During volatile times, it may be harder to predict where interest rates might be in 5 years.
Despite the allure of the savings potential offered by a lower rate and riding out prime rate trends — a variable rate isn't for everyone.
Set it, and forget it. Some homebuyers and owners, especially first-timers, prefer the set budget strategy (aka peace of mind) of a fixed rate.
Consider your risk preference. Prime rates (directly affected by Bank of Canada rate decisions) carry the risk of rising again if economic growth and inflation heat up, which may lead to 'rate regret' if you usually prefer the relative safety of a fixed rate.
Fixed rates aren't as high as they were a couple of years ago. They've come down ahead of prime rate declines, making it less expensive than even a year ago to lock into a fixed rate if you're comfortable with the mortgage payment.
(If you prefer a fixed rate, True North offers competitive term rates through volume discounts and access to several lenders.)
And just so you know, fixed rates are also facing pressure from recently rising bond yields and are likely to fluctuate within a tight range amid current trade uncertainty. Fixed rates may increase further if a prime rate hike is anticipated.
In November 2025, according to True North Mortgage clients, the 5-year variable rate choice outdrew the others as prime rates fell again this fall, which placed the variable rate (including discount off prime) even lower than most fixed rates:
How do these choices compare historically? During 'balanced' economic times, about 30% of clients typically choose a variable rate, about 60% opt for a 5-year fixed rate, and roughly 7% select a 3-year fixed rate.
Note: Stats include all lenders True North's clients were placed with, including our in-house CMHC-approved lender, THINK Financial.
Some may not want to lock in a 5-year fixed or variable rate amid current economic uncertainty.
Choosing a shorter term. Some clients prefer a shorter-term fixed rate, such as a 3-year deal, which may bring them into lower rates sooner than a 5-year rate.
Or, for those buying a home or switching lenders, we offer the lowest fixed rate in Canada. Our low-rate 6-month Rate Relief™ product offers a quick budget break to help with closing costs or moving expenses.
If you have any homeowner or mortgage decisions in mind, such as a potential move or sale, or additional funds you'd like to apply toward your mortgage principal, an open variable-rate mortgage can offer the flexibility you need.
A 'closed' variable mortgage is a standard mortgage product that incurs a penalty if you need to break mid-term.
Open variable rates tend to be higher than standard variable rates because lenders must absorb the increased risk of mortgage changes.
True North Mortgage offers a No Committment™ mortgage with the lowest open variable rate in Canada. Read more about our open variable-rate product and apply online or call us to learn more.
True North Mortgage consistently offers lower variable rates on average than the competition through its in-house lender, THINK Financial — and here's the proof.
This 3rd-party stat shows that over the years, we've helped clients save more with great rates and flexible mortgage terms.
Whether you choose a variable or fixed rate through our in-house lender or another lender, our highly trained brokers provide unbiased advice for your best mortgage fit, in your preferred language.
You only live once (unless you have nine lives like a cat or Rick Astley), so you may as well save the most on your mortgage.
We make it easy. Our expert brokers offer you exceptional 5-star service, along with your guaranteed best rate and the right mortgage product for your needs, regardless of whether your details are straightforward or more complex.
We can help with your rate decisions in 2026 and beyond — anywhere you are in Canada.
Which rate type works best for you, variable or fixed? Some pros and cons to help you decide.
Continually updated. Where rates may go now and later — and what’s driving them.
Will trade disruptions drive mortgage rates lower, even if inflation goes higher?
