Fixed vs Variable Mortgage Rate — Which to Choose? 2026 Guide

Verified by OACIQ — Updated on July 1, 2026

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Fixed or variable rate: this is the classic dilemma for every real estate buyer in Quebec. The decision depends on your risk tolerance, financial situation, and economic outlook. In 2026, as the Bank of Canada's key rate stabilizes around 2.75%, both options deserve serious analysis.

Historically, borrowers who chose the variable rate over 5-year periods have saved an average of 0.5% to 1% compared to fixed rate holders. But this saving doesn't come without risk: if rates rise, your payments rise with them. Here's a guide to making the best decision for your situation.

Key Points

Fixed rate — Total predictability

Your rate and payments are guaranteed for the entire term. Ideal if you manage your budget week-to-week or if rising rates would keep you up at night.

Variable rate — Potential savings

The variable rate follows the banks' prime rate (itself linked to the BoC key rate). During periods of stability or decline, you save compared to fixed.

Prepayment penalty

Fixed penalty = often 3 months' interest OR interest rate differential (can be high). Variable penalty = generally 3 months' interest only. If you might sell or refinance, variable is more flexible.

Open vs closed variable rate

Open variable allows full repayment without penalty, but at a higher rate (P+0.5%). Closed variable offers a lower rate but with penalty if you break before maturity.

Fixed vs Variable Rate Comparison — July 2026

Category	Value
Fixed 5-year (best)	4.59%–4.99%
Variable (P-0.50%)	3.95%
Prime rate	4.45%
Fixed penalty (break)	3 months or differential
Variable penalty (break)	3 months' interest
Variable savings over 5 years*	~$6,000–$18,000 ($400k)

Frequently Asked Questions

Who should choose a fixed rate in 2026?+

Fixed rate is recommended if: you have a tight budget and cannot absorb a payment increase, you plan to stay in the property for more than 5 years, or you are retired or near retirement with fixed income.

Who should choose a variable rate in 2026?+

Variable rate is interesting if: you have a financial cushion to absorb a potential increase, you plan to sell or refinance before the term ends, or you anticipate a decline or stability in key rates.

Can you convert a variable rate to fixed during the term?+

Yes, most variable rate mortgage contracts allow conversion to a fixed rate during the term, without penalty. The new rate will be the fixed rate on the conversion date, for the remaining duration.

What is the Interest Rate Differential (IRD) for fixed mortgages?+

The IRD is the major penalty for fixed-rate mortgages. It represents the difference between your rate and the current rate for your remaining term, multiplied by the balance and months remaining. With lower rates, the IRD can reach several thousand dollars.