The Fixed and Variable Gap Is Wide Right Now. Here Is How to Use It With an Adjustable Rate Mortgage.

Where do fixed and variable rates stand right now?

Variable rates are on hold and fixed rates are rising. The Bank of Canada has held its policy rate at 2.25% since October 2025, so prime at the major banks has stayed at 4.45%. Fixed rates follow bond yields instead, and several big banks have raised them since early September.

The Bank’s key interest rate page shows the last change on October 29, 2025, and a hold on September 2, 2026. The next rate announcement is Wednesday, October 28, 2026.

The Bank of Canada explains that a lender’s own funding cost sets most of a fixed rate. Prime, which tracks the policy rate, is what banks use to price variable mortgages. On the lender rate sheets I see every week, fixed pricing has moved up since early September. Prime has not moved at all.

Many borrowers are being offered a variable rate roughly one percentage point or more below the comparable 5 year fixed. The Financial Consumer Agency of Canada (FCAC) notes that a variable rate is typically lower than a fixed rate for a similar term. Right now the difference is unusually wide. You can compare current Ottawa mortgage rates to see where it sits today.

What is the “pay the difference” strategy?

You take the adjustable rate, then add a monthly prepayment so your total matches the fixed payment. In this example, that means adding about $283 a month, so you still pay $2,301. Your budget looks exactly like fixed, but far more of every dollar goes to principal.

This is the part of the conversation I find most clients have never heard.

You do not have to take the lower payment. Most mortgages let you raise your regular payment or make extra payments each year without a penalty. The FCAC calls these prepayment privileges, and most lenders cap how much you can prepay per year.

Here is why it works. Because your rate is lower, more of the required payment goes to principal instead of interest. The extra $283 goes straight to principal as well.

• If prime rises, your required payment goes up. You shrink the prepayment to keep your total at $2,301.
• If prime falls, your required payment drops. You raise the prepayment again.

You are essentially building your own buffer against rate increases while paying the mortgage down faster.

When does a fixed rate win?

Fixed wins if rates rise enough, fast enough, and stay there. In this example, prime would need to rise a little more than 1.25 percentage points almost immediately. It would then have to stay there for all five years just for fixed to break even. Anything less dramatic, and the adjustable rate comes out ahead.

That is a real possibility, and some forecasters do expect increases. The Bank of Canada targets 2% inflation, and my rate outlook covers where it stands and the dates to watch.

I would never tell anyone rates can only go down. But it helps to know exactly how much has to go wrong before the lower rate stops working in your favour.

Who should still choose a fixed rate?

A fixed rate may still be the better fit for you. That is true if your budget has little room for a higher payment, rate announcements would stress you out, or you would not actually use prepayments. Certainty has value. The point is to know what you are paying for it.

A lower rate is not right for everyone. I would still point you toward fixed if:

• Your budget has very little room to absorb a higher payment.
• Watching rate announcements would genuinely cause you stress.
• You would not actually use prepayments, and certainty matters more to you than potential savings.

Peace of mind has real value. The goal is simply to know what you are paying for it.

Want the broader version of this decision, including how lenders set each rate and when you can lock in? Read my take on the fixed vs variable mortgage choice.