Understanding Today’s Mortgage Rates: Fixed or Variable?

The housing market is beginning to stir, but it’s far from the surge many expected when interest rates started to come down. Instead of a rapid rebound, we’re seeing a more gradual recovery. For homebuyers and homeowners alike, mortgage rates remain top of mind, and understanding what’s driving them is key to making informed decisions. The answer depends on which type of mortgage you’re looking at: fixed or variable.

Fixed and variable rates respond to very different forces. Fixed mortgage rates are influenced by the bond market, specifically the yield on 5-year Government of Canada bonds. These yields fluctuate based on investor expectations around inflation and interest rate trends. When yields rise, fixed rates usually follow suit. When they fall, so do rates. Recently, global economic uncertainty has caused bond yields to bounce around, and that volatility has made its way into fixed-rate pricing.

Variable rates, on the other hand, are directly tied to the Bank of Canada’s overnight lending rate, which affects the prime rate used by lenders. Over the past year, the Bank has cut rates seven times, bringing its key interest rate down to 2.75%. For now, it’s holding steady. Given ongoing economic uncertainty and new trade tensions with the U.S.—including fresh tariffs on Canadian goods—the Bank is taking a cautious approach. Its current strategy aims to support borrowers without allowing inflation to rise again, which means we may not see aggressive rate moves in the near term.

As a result, variable rates have become an appealing option for many clients, especially those watching the economy slow down. The flexibility and immediate savings of a variable rate can be attractive, but they also come with a degree of risk. In contrast, fixed rates offer long-term predictability, which continues to appeal to buyers who prefer stability in uncertain times.

Understanding how and why these rates move differently is essential for choosing the right mortgage strategy. Every client’s financial situation, risk tolerance, and long-term goals are unique, which is why tailored advice matters more than ever. With so much in flux, the big question remains: is now the right time to go variable?