How To Predict Mortgage Rates (And Pick Fixed Or Variable)

By Alex McFadyen, Flow Mortgage Co | September 2026 | 10 min read

A client asked me this on a call about their renewal: "What's the difference in today's average variable versus fixed? Like, are we within a half a point?"

That's the right question to start with. It gets you to 3 things you can find out: how big the gap is on your quote, how many rate hikes it would take to close it, and whether your budget can handle the payment if they come.

Where do fixed mortgage rates come from?

Fixed rates follow the 5-year Government of Canada bond yield, which is what investors earn for lending to the government for 5 years. Lenders price a 5-year fixed at that yield plus a margin. The 5-year yield went from about 3.03% in early July to 3.68% on September 28, a 2-year high, and lenders raised fixed rates through September as it climbed.

This is why fixed rates can rise while the Bank of Canada does nothing. The Bank held its rate at 2.25% on September 2, and fixed rates still went up, because bond investors started pricing in future hikes.

Where do variable mortgage rates come from?

Variable rates follow the Bank of Canada's rate through a simple chain. The Bank sets its rate, which is 2.25% today. Banks set prime at 2.20 above that, which is 4.45% today. Your variable rate is prime minus a discount that stays fixed for your whole term, so every Bank of Canada move passes straight to you.

On our rate sheet today, a 5-year variable is 3.85% and a 5-year fixed is 4.79%. That's a gap of 0.94, so the difference between fixed and variable today is almost a full point, well outside that client's half a point. These are insured rates, and with 20% or more down they can run about 0.30 higher. Rates are subject to change and move daily, so check yours before you compare.

How do you read what the market expects?

Start with what's already priced in. Bond markets are betting on 5 hikes of 0.25 by the end of 2027, which would take the Bank's rate from 2.25% to 3.50%. That bet is more aggressive than most forecasters, and the gap between them is where your decision gets made.

What would make the Bank hike, or hold?

The Bank of Canada moves on inflation, and it watches wages and the economy to judge whether inflation will last. Right now the signals split. Wages and the Bank's preferred inflation measures point to fewer hikes than the market expects, and energy prices and the headline number point to at least 1 or 2.

2 dates will tell you a lot. September's inflation numbers come out on October 19, and the Bank's next decision is October 28 (our Bank of Canada Decision Playbook covers what to do the week before and after). If the Bank's preferred inflation measures climb above about 2.2%, the market's bet starts to look right. If they stay near 2%, 5 hikes starts to look like too many.

What happens to your mortgage in each scenario?

We ran 4 paths for the Bank's rate through our mortgage calculator on a $500,000 mortgage with a 25-year amortization, comparing a 3.85% variable with a 4.79% fixed over a 5-year term. Variable comes out ahead in 3 of the 4. It only loses if every hike the market expects happens and stays for the rest of the term, and even then by less than it saves in the best case.

Look at the payment column as well as the savings. In the worst case your variable payment goes from $2,589.60 to $2,930.32, which is $340.72 more a month than where you started and $81.78 more than the fixed payment. Whether you can carry that for a few years matters more than which scenario you think is most likely.

How do you choose? The P.R.E.P.A.R.E. framework

Our P.R.E.P.A.R.E. framework is the 7 questions we walk clients through before they pick, and each one checks whether your life can absorb the scenarios above.

P: Payment Stability

Could your budget take a payment $340 a month higher on a $500,000 mortgage, or roughly $68 per $100,000 you borrow? If a jump like that would force you to cut something you care about, that leans fixed. If it wouldn't change much, variable is on the table.

R: Risk Tolerance

Variable's best case saves about $22,475 in our example and its worst case costs about $3,878. Some people are happy with that trade. Others would lose sleep over every Bank of Canada announcement for 5 years, and that's a cost too.

E: Equity and Emergency Funds

Savings can cover a higher payment while rates are up. If you have several months of payments set aside, a stretch of hikes is uncomfortable but manageable. If you don't, fixed gives you a payment you can plan around.

P: Plans for the Future

If there's a chance you'll sell, move or refinance in the next 5 years, this one matters a lot. Breaking a variable usually costs 3 months' interest, and breaking a fixed can cost far more. Our look at 9 lenders' penalties on the same mortgage found fixed penalties from $6,613 to $23,000.

A: Affordability Over Time

Think about where your income is heading. If it's likely to rise over the next few years, a payment that climbs slowly is easier to carry. If your income is flat or about to drop, for a parental leave or a career change, a steady payment is worth more.

R: Rate Cycle Position

This is where the market's bet comes in. Rates are at 2.25% after a cutting cycle, and bond markets expect hikes, while wages and the Bank's preferred inflation measures say 5 hikes might be too many. Your gap of 0.94 on today's rates means it takes about 4 hikes that stay to break even and 5 for fixed to win.

E: Economic Factors and Employment Stability

Canada lost 42,000 jobs in August, and new tariffs hit in September. If your job is tied to exports or feels exposed, you might want the certainty of fixed, even if the math leans variable. A stable paycheque makes variable much easier to hold.

Every Flow quiz, guide and calculator

Everything below is free. Start with the quiz that matches where you are, and the guides fill in the detail.

Frequently asked questions

Can anyone predict mortgage rates?

No one predicts rates reliably, including the Bank of Canada, whose own forecasts change every quarter. What you can see is what bond markets are pricing today, which right now is 5 hikes by the end of 2027. Treat that as the market's bet and test your mortgage against it.

Why did fixed rates go up when the Bank of Canada didn't raise rates?

Fixed rates follow the 5-year government bond yield, and that yield rose from about 3.03% in early July to 3.68% by late September as investors priced in future hikes. The Bank held its rate at 2.25% on September 2, but lenders raised fixed rates because their cost of funding went up.

How many rate hikes would make fixed better than variable?

With a 0.94 gap between fixed and variable, it takes about 4 hikes that stay for the rest of your term to break even and 5 for fixed to come out ahead. A smaller gap on your quote means fewer hikes. Our calculations assume the hikes come on the market's timing and stay in place.

Can I switch from variable to fixed later?

Many lenders let you convert a variable to a fixed during the term, at their fixed rate on the day you switch. The rules vary by lender, so ask before you sign. By the time hikes are happening, fixed rates have often risen already.

Sources

• 5-year Government of Canada bond yield, 3.68% on September 28, 2026: Bank of Canada, selected bond yields.
• Bank of Canada rate 2.25%, headline inflation 3.0%, preferred measures 1.9% and 2.0%: Bank of Canada.
• Bond market pricing more than 100 basis points of hikes by the end of 2027: BMO via Wealth Professional, September 14, 2026.
• Market participants survey and Reuters economist poll: via roryc.ca.
• Wages 2.0%, 42,000 jobs lost in August: Statistics Canada Labour Force Survey via Canadian Electrical Wholesaler.
• July GDP unchanged: Dow Jones via Morningstar, September 29, 2026.
• Bank of Canada September 2 statement on inflation risks: via homeowner.ca.
• Rates: Flow Mortgage Co rate sheet, September 29, 2026, insured, subject to change. Payments and interest: Flow Decision Studio mortgage engine, Canadian semi-annual compounding.