Mortgage renewal in 2026: how to choose between fixed and variable
Something notable is happening at the mortgage renewal table. According to CMHC’s Spring 2026 Residential Mortgage Industry Report, variable-rate mortgages became the most popular choice among borrowers extending their mortgages at Canada’s chartered banks — 42% of them by February 2026. Five years ago, the default at mortgage renewal was almost automatic: take another five-year fixed. Today, with the Bank of Canada holding its policy rate at 2.25% since last October and variable rates sitting noticeably below fixed, more Canadians are weighing both paths. Neither one is “right.” But there is a right way to decide.
What the rate gap looks like right now
As of early July, the sharpest five-year high-ratio fixed rates in the market sit around the low 4% range, while comparable five-year variable rates sit roughly half a percentage point lower, in the mid-3% range. (These are market observations for illustration — your rate depends on your file, your equity, and your lender.)
That gap exists because fixed rates are priced off the five-year Government of Canada bond yield — currently hovering near 3% — while variable rates move with your lender’s prime rate, currently 4.45%, which follows the Bank of Canada’s overnight rate.
A worked example: what the choice costs in Waterloo Region
Take a composite example: a couple in Kitchener renewing this summer. They bought a detached home in 2021, and at mortgage renewal they owe $420,000 with 20 years of amortization remaining.
At an illustrative 4.04% fixed, the payment works out to roughly $2,546 a month. At an illustrative 3.45% variable, roughly $2,420 — about $126 a month less, or $1,500 a year in cashflow.
Here’s the frame I find most useful: the Bank of Canada would need to raise its rate by more than two quarter-point hikes before that variable payment caught up to today’s fixed payment. If they believe hikes on that scale are unlikely — and can afford to be wrong — variable may suit them. If a $100–$200 payment swing would keep them up at night, the fixed premium is simply the cost of sleeping well. Both are legitimate answers. It depends on the household, not the headline.
The questions that actually decide it
Rate is only one input. Before choosing, work through these:
- Your buffer. Could your budget absorb the payment if prime rose a full percentage point? If yes, you can afford to consider variable. If no, that answers it.
- Your horizon. Planning to sell or move mid-term? Variable mortgages typically carry a three-months’-interest penalty, while breaking a fixed can trigger an interest rate differential (IRD) — a penalty based on the gap between your rate and current rates, which can be substantially larger.
- Your convertibility. Most variable products let you convert to a fixed term later without penalty. Useful — but remember you’d convert at the rates offered then, not today’s.
- Your renewal leverage. Since late 2024, OSFI no longer requires a stress test when you switch lenders at renewal with the same balance and amortization. Signing the first renewal letter your lender mails you is optional. Shopping it is free.
Don’t let the rate question hide the bigger one
A mortgage renewal is one of the few no-penalty windows to restructure entirely: consolidate higher-interest debt, adjust your amortization to fit retirement plans, or set up a payment structure that matches how you’re actually paid. Sometimes the fixed-vs-variable debate is the least valuable conversation to have at renewal.
This week’s takeaways:
- Pull out your renewal letter and note your maturity date — lenders will often hold a rate 90–120 days out.
- Ask your current lender for both their fixed and variable renewal offers in writing.
- Run the “one percent test”: calculate your payment if prime rose 1%. If it still fits, you have a real choice to make. If not, you have your answer.
- Ask what the penalty would be to exit each option mid-term — before you sign.
- Get an independent comparison before the deadline. A straight switch at renewal no longer requires re-qualifying under the stress test at federally regulated lenders.
If your renewal is coming up in the next six months, I’m happy to walk through both scenarios with your actual numbers — no obligation, no sales pitch. Book a 20-minute call.