As bond yields rise, how to pick between a variable or fixed rate mortgage?

Whether you’re in the market for a new mortgage or are looking to renew, you’re likely paying attention to rising bond yields across the world, including here in Canada.

The turbulence in the bond market may be changing how Canadians shop for their mortgages, some experts say. Historically, Canadians have preferred for the stability of monthly costs that a fixed-rate mortgage offers.

However, rising bond yields have left some wondering if a variable rate mortgage might be a better bet for families trying to save money in the short term.

Canada is currently in the midst of a significant wave of mortgage renewals, with more than one million households either renewing or close to renewing their mortgages this year.

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While variable mortgages are driven directly by the Bank of Canada’s overnight rate, your fixed-rate mortgages respond to bond yields as well.

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Over the last few months, bond markets around the world have been volatile amid global uncertainty and high levels of government debt, with multi-year highs in bond yields around the world, including the 10-year Treasury bond yield in the U.S. and bond yields here in Canada.

Canada’s 10-year government bond yield hit 3.85 per cent on Thursday. The five-year yield, typically the benchmark for fixed-rate mortgages, was up to 3.55 per cent.

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This has meant that the gap between fixed-rate mortgages and variable-rate mortgages is widening in Canada. As of Thursday, the lowest available rate for the five-year fixed-rate mortgage – the most popular mortgage in Canada – was 4.34 per cent, according to Ratehub.ca. This was almost an entire percentage point higher than the lowest variable rate mortgage at 3.43 per cent.

“That difference can have a significant impact on monthly mortgage payments,” said Jamie David, vice president of mortgages at RateHub.

This has made variable rates more attractive to Canadian borrowers who are looking to reduce their monthly costs, she said.

“This year, we’re seeing a significant shift in borrower interest towards variable-rate mortgages,” she said.

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Inquiries for variable-rate mortgages accounted for 36 per cent of all inquiries on RateHub between January and September, up from 10 per cent during the same period in 2025, David added.

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However, fixed is still king for most borrowers, said Rates.ca mortgage and real estate expert Victor Tran.

“Variable rates haven’t moved up the way fixed rates have so borrowers who can handle some movement are asking about them more. But it’s not a flood of people switching,” he said.

“Most still want the certainty of fixed, particularly if they’re renewing or buying with a tight budget,” Tran added.

While variable rates can offer lower costs right now, it is important to understand your risk tolerance and financial goals before you make a decision, David said.

“Assess whether your household budget can comfortably absorb higher payments if interest rates rise during your mortgage term, rather than focusing entirely on today’s rate,” she said.

Most lenders offer the option of converting a variable mortgage to a fixed during their term without a prepayment penalty, but you would have to switch to your lender’s available fixed rate at the time, she added.

On the other hand, fixed-rate mortgages may cost more now but they offer certainty of monthly costs.

“Fixed is simple. Payments don’t change, which makes budgeting easier. The downside is you may pay more if rates come down and breaking the mortgage early can be costly,”  Tran said.

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Shorter-term fixed mortgages, like a two-year or three-year fixed mortgage, can offer a compromise for borrowers who want certainty of monthly payments but don’t want to commit to a five-year fixed mortgage with today’s rising bond yields, David said.

“If you believe that rates will go down within the next two to three years, then this might be a good option for you,” she said.

However, the tradeoff is that if the rates are higher when your term ends, you might end up paying more when it comes time to renew.

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Canadians should expect continued volatility in the bond market and fixed-rate mortgage rates in the coming days, David said.

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“If the Bank of Canada signals a potential rate hike at its Oct. 28 announcement or inflation remains elevated due to high energy prices, yields could climb further, pushing fixed mortgage rates even higher,” she said.

“However, if inflation eases or economic conditions weaken due to ongoing tariff uncertainty, yields could pull back.”