Rates.ca said in a report on Thursday that interest in variable mortgages has “steadily” increased, based on November financing requests made through the mortgage aggregator.
Big Bank Warns 2026 Might Prove Very Tough For Canadians Who Chose Variable Mortgages
More Canadians jumped into variable mortgages in 2025 to take advantage of their lower rates, but doing so in 2026 might prove perilous, according to Desjardins.
“The recent enthusiasm for variable-rate mortgages may wane in 2026, especially if borrowers start anticipating new rate increases,” Hendrix Vachon, principal economist at Desjardins, said in a report.
Canadians have typically preferred five-year fixed mortgages, but he said variable options “have been gaining in popularity from 2024 onward,” estimating they made up 38% of new mortgage financing in October and 32 per of the total outstanding mortgages based on Bank of Canada data.
The interest rate for variable-rate mortgages was 3.97% at the end of October compared with 4.21% for all insured residential mortgages and 4.39 per cent for five-year and above fixed residential mortgages, according to the Bank of Canada.
That’s a big turnaround for variable rates, Vachon said.
In the wake of the pandemic, variable mortgage rates fell to a low of 1.5%, only to swoop to a high of 7.48% as the Bank of Canada began hiking interest rates to cope with soaring inflation.Unlike fixed mortgages, variable mortgage rates are just that — variable.
Mortgage rates are set based on the prime rate, with most people able to negotiate a discount that remains the same over the term of the mortgage, even though the rate changes with the prime rate.
But Vachon said the tide could be turning on variable rates, so borrowers could find themselves on the wrong side of the ledger.
“For 2026, the outlook is currently less favourable for variable rates,” he said.
The Bank of Canada recently said it was done cutting rates for the foreseeable future, with markets and economists increasing their bets that the central bank’s next move will be an increase.
Desjardins’ latest forecast called for two 25-basis-point rate hikes in 2027 and none in 2026, but markets are betting there will be one rate increase at the end of 2026.
Estimates for the long-term neutral rate, where borrowing levels neither stimulate nor restrict the economy, are set at 2.75%, or 50 basis points higher than the Bank of Canada’s current benchmark lending rate of 2.25%
If variable-rate mortgages become more expensive, Vachon said more borrowers will likely opt for three-to-five-year mortgages, which overtook the five-year option in fixed popularity.
“Before the pandemic, mortgages with these terms typically accounted for less than 20% of all mortgages before jumping above 50 per cent in 2024,” he said. “Right now, they’re still near 40%.”
For now, it’s no wonder more Canadians have taken the plunge with variable-rate mortgages, given that housing affordability is such a hot-button topic.
Displeasure with issues such as the overall cost of living and housing affordability among the sources of most premiers’ plummeting ratings, according to an Angus Reid Institute poll released on Thursday.
“Provincial governments have been viewed as performing poorly on issues such as health care, the cost of living and housing affordability, which have been among the top concerns for provincial residents in the past three years,” Angus Reid said in the poll release.
