Mortgage Decision Hinges on Rate Expectations After Bank of Canada's Hold

The Bank of Canada's September rate hold has left mortgage decisions in limbo. The central bank maintained its policy rate at 2.25%, keeping variable rates steady since October 2025. However, bond yields have increased, pushing up fixed mortgage rates. This shift changes the dynamics of the fixed versus variable mortgage debate.

Fixed-rate mortgages stay the same for the entire term, while variable rates move with changes to the lender's prime rate. The Bank of Canada's recent comments have placed greater emphasis on inflation risks, which is especially important for variable-rate borrowers. Every 0.25 percentage-point increase in a variable mortgage rate adds approximately $1,250 per year in interest costs for every $500,000 borrowed.

Variable-rate mortgages often come with lower prepayment penalties, but breaking a fixed term early can cost more in penalties. Borrowers must also qualify under the stress test at the higher of their contract rate plus 2% or 5.25%. The mortgage decision ultimately comes down to how much payment movement one can absorb and how long they plan to keep the mortgage.