Fixed vs. Variable in 2025: What’s the Smart Move Now?

Most people start with the same question when it comes to mortgages:
“What’s the rate?”

And right after that:
“Should I go fixed or variable?”

Fair enough — those are important questions. But in 2025, the rate you get today isn’t the whole story. What really matters is where you’ll be when that term ends. Will you be renewing into a better, worse, or totally unpredictable rate environment?

Let’s unpack what’s going on now, and how to think through your mortgage decision based on what’s ahead.

Fixed Rates Are Still Lower — But Why?

Here’s something that still feels strange to say:
Fixed rates are currently lower than variable.

Depending on your lender and situation, 3- and 5-year fixed mortgage rates are generally in the high 3% to low 4% range. Variable-rate mortgages, on the other hand, are sitting in the low to mid 4% range.

That flips the usual relationship on its head. Normally, variable rates are the lower option because they come with more risk. But in 2025, fixed-rate pricing reflects the expectation that the Bank of Canada will begin easing rates later in the year. That optimism is already baked into fixed mortgage pricing.

The Real Question: What Happens When Your Term Ends?

This is the part a lot of people overlook.

Let’s say you take a 3-year fixed term. That means you’ll be renewing in 2028.
A 5-year fixed term? You’re covered until 2030.
If you go variable, you’re exposed to changes from the Bank of Canada right away.

So it’s not just about what rate you get today — it’s about what kind of rate environment you’ll be stepping into later.

Are you okay rolling the dice in 2028? Or would you rather lock things in a bit longer?

And beyond the numbers, this is really about your own risk tolerance. Some buyers — especially first-time buyers — feel more comfortable with the predictability of a longer fixed term. If you’re early in your mortgage journey, managing your first home, and still building equity, you may not want to take on the uncertainty of a shorter term or a fluctuating rate. That’s worth seriously considering.

The Market Isn’t Moving Fast (And That’s Telling)

Earlier in 2024, the bond market was confident that rate cuts were right around the corner. But here we are in mid-2025, and that urgency has cooled.

Bond yields have come down a bit, but we’re not seeing dramatic drops. The message from the markets right now is:
“Cuts are coming — eventually — but we’re not in a hurry.”

What the Bank of Canada Is Really Worried About

The Bank of Canada is still walking a tightrope.

Headline inflation has eased, but core inflation — the stickier stuff — is still sitting above 3%. That’s keeping the Bank cautious. On top of that, there are growing concerns about external risks, like ongoing trade tensions and global market volatility.

They don’t want to cut too early and reignite inflation. And they don’t want to hold too long and choke the economy either.

So it’s a wait-and-watch environment — and that uncertainty is important to factor into your mortgage decision.

The Fed Isn’t Moving Either — And That Matters

The U.S. Federal Reserve has also decided to hold steady. They’re keeping interest rates where they are until there’s more clarity on inflation.

And here’s why that matters to Canadians:
If the Bank of Canada cuts rates too quickly while the Fed stands firm, it could weaken the Canadian dollar — which can drive up the cost of imports and reintroduce inflation pressure.

So even though Canada might want to move faster, it can’t afford to act too far out of sync with the U.S.

So... What Should You Do?

Let’s make this real. Here are a few ways to think about your options:

• First-time buyer? While a 3-year fixed could offer flexibility down the road, many first-time buyers prefer the stability of a 5-year fixed. When you're new to the market, carrying a larger loan, and still learning to budget for homeownership, predictability often matters more than rate maneuvering. Consider your comfort level with change before choosing a shorter term.

• Need long-term certainty? A 5-year fixed provides predictability through 2030. That’s a solid hedge against renewal shock — especially if you like the idea of setting it and forgetting it.

• Refinancing or consolidating debt? It depends on how long you plan to hold the mortgage. If you think you’ll make another move in a few years, a shorter fixed or even variable might work.

• Leaning variable? Just know that you’re committing to some near-term uncertainty. Rate cuts may come later — not sooner — and you’ll need to be ready to ride those changes.

Final Thought: Plan for Renewal, Not Just for Today

The rate you pick today only tells part of the story. The bigger piece is where you’ll land at the end of your term.

If you’re choosing a 3-year fixed, be prepared for whatever the market might look like in 2028.
If you go 5 years, are you comfortable locking in something slightly higher now in exchange for peace of mind through 2030?

And above all: make sure the mortgage you choose fits you.
Your comfort with risk. Your goals. Your lifestyle.

Because the best mortgage strategy doesn’t just look good on paper — it feels right in real life.