Variable Mortgages: The Smart Play for 2026, But Only If You Know How to Use Them

Coutesy of the Globe and Mail

After several turbulent years of rate hikes, inflation worries, and market uncertainty, 2026 may finally bring some relief to Canadian mortgage borrowers.

The Bank of Canada’s prolonged rate-hold policy has kept the prime rate steady at 4.45%, marking the end of nine consecutive rate cuts between mid-2024 and late 2025. With the lowest variable rates hovering near 3.4%, this year could be the best window in years for those considering a variable mortgage—provided you approach it with strategy and foresight.

Why Variable Mortgages Are the Most Attractive Option

With bond market volatility keeping fixed mortgage rates higher, variable products currently have about a 0.49% (49 basis points) advantage over five-year fixed terms. That margin might sound small, but over the life of a mortgage, even a half-percent difference can translate into thousands in savings.

The Bank of Canada’s recent report outlines a stable economic outlook through 2026, as inflation holds steady near the 2% target and trade sectors adapt to new post-pandemic realities. That stability means variable rates should remain low through this year, giving borrowers a chance to secure very competitive financing.

But it’s crucial to remember: the same economists predicting stability for 2026 also expect the economy to strengthen again by 2027. When that happens, rates could start rising.

What Borrowers Should Do Now

If you’re considering a variable-rate mortgage this year, here are key steps to protect yourself and maximize the benefits:

1. Secure a Rate Hold Early

In lower-rate environments, lenders often widen the spread between their rates and the prime rate to preserve margins. That means the variable pricing available today might not last. Locking in with a rate hold or full preapproval now lets you keep the current terms even if lenders adjust later.

2. Choose the Right Type of Variable Product

Not all variable mortgages behave the same way.

• Adjustable-rate mortgages (ARMs): Your payment moves up or down as the prime rate changes—more transparency and flexibility.

• Variable-rate mortgages (VRMs): Payments stay fixed, but the mix of principal versus interest changes when rates move.

For risk-tolerant borrowers who want full control, ARMs are ideal because they adjust immediately. VRMs can make budgeting easier but risk reaching a “trigger rate”—when payments stop reducing your principal.

3. Plan Ahead for Next Year’s Rate Hikes

It’s unlikely we’ll see dramatic increases like in 2022–2023, but gradual hikes by late 2026 or early 2027 are plausible. Choosing a flexible mortgage that allows you to convert to a fixed rate later—without paying refinance penalties—is a smart safeguard.

4. Use the Low-Rate Window to Pay Down Principal

This is the year to get ahead. Make larger or more frequent payments while rates are low. Most lenders allow 15–20% prepayment privileges, and some go as high as 25%. Accelerating payments or adding lump sums now can dramatically reduce your total interest costs and make future hikes less painful.

Example: Making the Most of a Variable

Take Daniel, a homeowner with a $500,000 mortgage. If he switches to a variable rate of 3.4%, his monthly payment drops by roughly $130 compared to a fixed rate near 3.9%. Instead of pocketing those savings, Daniel increases his payments by $100 monthly, using that difference to chip away at his principal. By year’s end, he has not only built extra equity but also prepared himself for any future rate increases.

What It Means Going Into 2027

Fixed rates will remain higher for most of this year, so variable rates will continue to look appealing. As we move toward 2027, potential rate hikes could change the landscape again—but borrowers who use 2026 to stabilize their finances, pay down debt, and lock in strong terms will be well-positioned for the next cycle.

If you’re weighing whether a variable-rate mortgage fits your strategy, or want help planning around potential 2027 rate movements, I’m here to help. Let’s create a mortgage plan that works in your favor—both now and down the road.

📞 Call or text: +1 (647) 554-2718

📸 Instagram: @_mrmortgage

Let’s make 2026 the year you leverage lower rates into lasting financial strength.