What has to be true for fixed to beat variable on a late-2026 $500,000 renewal

The letter on the table has two boxes. Five-year fixed at 4.59%. Five-year variable at 3.74%. The balance is $500,000. Twenty-five years left on the amortization. A late-2026 renewal, modeled, not a family.

The gap is 85 basis points. Variable opens $232 a month cheaper: $2,560 against $2,792. Over a five-year term that opening gap is not the answer. The answer is what has to happen to Prime for the cheaper box to stop being cheaper.

On October 28, 2026 the Bank of Canada raised the overnight target 25 basis points to 2.50%, effective October 29. Bank Rate 2.75%. Deposit rate 2.45%. The press release is the decision that ended the hold. Big-bank prime is 4.70%, overnight plus the banks' usual 220 bp. The next date is December 9. September 2 was the seventh consecutive hold at 2.25%. That meeting is history. Five-year fixed money follows the five-year Government of Canada bond, 3.58% as of October 29. Variable follows Prime. Today's variable is Prime minus 96.

This is the file. Then the paths. Then the things that usually decide it anyway.

A $500,000 file, modeled

Uninsured or insured does not change the payment on a straight renewal of the same balance. The engine is Canadian monthly payments, semi-annual compounding, not in advance. $500,000 remaining, 25 years left, five-year term, adjustable payments on the variable leg.

Fixed at 4.59% is the known point: $2,792 a month, $107,180 of interest over 60 months, $439,633 still owed at term end. No branches.

Variable starts at 3.74% — $2,560, $232 lighter — and everything after that is Prime. If Prime never moves, variable interest over 60 months is $86,883, with $433,277 still owed. Those are the live street-card numbers from ratellow.com/api/rates, last updated October 29. Posted five-year benchmark at the chartered banks is 6.19%. Do not shop the posted card.

A stay at your current lender, or a straight switch with the same balance and remaining amortization, does not re-open the prescribed stress test. Increase the loan or the amortization and it does: 6.59% on today's fixed, 5.74% on the variable. The variable qualifies you for slightly more. That is a different file if you are adding money.

What has to be true

Compare total interest over 60 months. Payments and ending balances move, so the monthly number lies.

The paths below are judgment, not a model. The Bank of Canada's own Q2 2026 Market Participants Survey, out July 27, had the first hike not arriving before Q2 2027. That survey is already behind October 28. The Big Six, as of mid-July, were split: Bank 5, Bank 4, Bank 1 and Bank 2 at 2.25% through year-end, a major bank and Bank 3 at 2.75%. Treat that split as a July snapshot. Treat the ordering below as the argument from the rate now in force. Treat the percentages as soft.

The hold, then a gentle 2027 step (~55%)

The Bank sits through December 9. Then a quarter point in the spring of 2027 and another by summer. Policy to 3.00%. Prime to 5.20%. Variable spends six months at 3.74%, three months at 3.99%, then 4.24% for the rest of the term. The payment drifts to $2,693, still under the fixed coupon at the end of the term. Interest $97,183. Variable is ahead by $9,997.

That is the gentle reading, restated from 2.50%, and it is the one this weighting leans on.

Cuts come back (~25%)

The July Monetary Policy Report had 2026 real GDP near 0.7% and unemployment at 6.5%. Equifax had first-quarter 2026 mortgage delinquency balances up about 32% year over year nationally, 52% in Ontario. If the oil impulse fades the way the Bank wrote it, the labour market is the binding argument.

Three cuts from 2.50% take policy to 1.75% and variable to 2.99%. The schedule used here is two months at 3.74%, three at 3.49%, three at 3.24%, then 2.99% for the remaining 52 months. The payment falls to $2,366. Interest $70,717. Variable is ahead by $36,463.

Hikes come back (~20%)

CPI printed 3.2% in May on gasoline tied to the Middle East. The five-year bond spiked near 3.18% in early July and sits at 3.58% now. If that impulse broadens, the Bank keeps going: four more quarter-point steps through 2027, policy 3.50%, Prime 5.70%, variable finishing the term at 4.74%. The schedule is four months at 3.74%, then three, three and three months stepping a quarter point at a time, then 4.74% for the last 47 months. The payment climbs to $2,828. Interest $107,099. Variable is ahead by $81. Call that a tie.

Reading the three paths

Probability-weighted, variable is ahead by about $14,600. Forget that number.

The ugly path is a tie, $81. The good one saves about $36,000.

The break-even is slow. From an 85 bp opening discount, a permanent step of about 100 basis points by mid-2027 is roughly a tie. A fifth quarter-point that sticks, about 125 basis points by then, puts the five-year ahead by roughly $5,200. If the step waits until early 2028, the tie sits closer to 115 to 120 basis points. That is a better test than guessing December 9.

Nobody forecast 2022 correctly, the Bank included. These percentages are ours.

The things that usually decide it

Which variable you actually hold

Canadian "variable" is two products. A variable-rate mortgage (VRM) keeps the payment still and moves the interest-versus-principal split. An adjustable-rate mortgage (ARM) moves the payment and keeps the amortization on the calendar. The paths above assume an ARM.

A VRM's frozen payment defers the adjustment. Push the rate high enough and the payment stops covering interest — the trigger rate — and unpaid interest piles onto principal. On this $500,000 opening at 3.74%, the trigger sits near 6.2%, which is Prime around 7.2%, some 250 bp above today. Remote on all three paths. The mechanic is still why industry summaries of the Bank's renewal work put about 10% of variable renewers facing payment jumps above 40% while about 25% see payments fall at least 7%. Same product name. Opposite households. Start with VRM versus ARM, then the trigger-rate math.

Breaking it

A closed fixed mortgage exits at the greater of three months' interest or the interest rate differential. A closed variable exits at three months' interest, flat. IRD is a fixed-rate test.

FCAC's own worked example, not ours: $200,000 at 6% with 36 months left, against a 4% posted rate, is about $3,000 on three months' interest and about $12,000 on IRD. The borrower pays the higher figure.

On this modeled $500,000 file, three months' interest is about $5,738 on the five-year fixed and about $4,675 on the 3.74% variable. Only the fixed carries IRD on top. Those are file math, not a government schedule.

If you might move, refinance, or pull equity inside five years, that option is often worth more than 85 bp. That is why switching from variable to fixed mid-term exists: many lenders will convert you. Confirm yours before you count on it. Variable is a decision you can partly take back. A closed fixed term waits on IRD.

The test, if it applies

A straight switch at renewal is largely exempt. Extra principal or a longer amortization brings the test back at the greater of contract plus two points or 5.25% — 6.59% on today's fixed, 5.74% on the variable. How the stress test differs for fixed versus variable.

Forty-two percent is not an argument

CMHC's Spring 2026 Residential Mortgage Industry Report put variable at 42% of newly extended mortgages in February 2026. Most popular single category. First time variable outpaced fixed since 2022. Traditional five-year fixed was 11%.

Read the series, not the print. 57% variable at the January 2022 peak. 5–6% at the mid-2023 trough. 42% by February 2026. Households buy variable when it is cheap and leave when it is not. Forty-two percent is a spread observation. The 2022 cohort that crowded in at the peak bought the top. The long-run record is kinder to variable than that cohort. The crowd is still not a reason.

Run the two boxes

The widget is this file. Variable in the current-rate box at 3.74%. Fixed in the new-rate box at 4.59%. $500,000. Twenty-five years. The widget matches the table. Change your own balance before you trust anyone's ranking, including ours.

If you want a third offer on the same screen, open the renewal comparison view. Then the full fixed-versus-variable framework and the 2026 worked example.

What you are actually buying

Variable is the better expected-value choice at an 85 bp opening gap, and being wrong now takes a genuine reversal — about 100 bp that sticks by mid-2027 is a tie, and a fifth quarter-point puts fixed ahead. Fixed at 4.59% buys a payment you can put in a spreadsheet, at about $9,997 of extra interest on the gentle path. A household that already ate a 15–20% jump, or that cannot take $2,828 if Prime walks the ugly path, is buying sleep. That is rational.

The three-year fixed is also 4.59%, the same $2,792. There is no coupon discount for the shorter term on this card. You are back in the market in 2029. That second decision is the only thing the three-year buys.

Pick on your own two numbers. October 28 already happened. December 9 will not save a letter you sign on the posted card.

FAQ

Is variable cheaper on a $500,000 late-2026 renewal? It opens cheaper. $2,560 a month at 3.74% against $2,792 at 4.59%, a $232 gap, 85 bp. Over five years it stays cheaper unless Prime rises about 100 bp by mid-2027 and stays there. That is four quarter-point hikes that do not reverse. A fifth puts the five-year ahead.

How many Bank of Canada hikes would make the 4.59% five-year win? About four more quarter-point steps that land by mid-2027 and never come off is roughly a tie on this file. Five, about 125 bp, puts fixed ahead by roughly $5,200. A hike path that waits until early 2028 needs closer to 115 to 120 bp.

Does choosing variable change the stress test at renewal? Not on a stay or a straight switch of the same balance and remaining amortization. Extra money or a longer amortization brings the prescribed test back: 6.59% on today's fixed, 5.74% on the variable.

What does it cost to leave early? Closed variable: three months' interest, about $4,675 on this modeled $500,000 file. Closed fixed: the greater of three months' interest, about $5,738, or IRD. FCAC's published example on a smaller loan shows IRD running four times three months' interest. Those dollar figures are file math, not a government fee schedule.

Should I take the three-year instead? It pays the same $2,792 as the five-year fixed on this card. You reprice in 2029. A shorter fixed, with a second decision attached, and no monthly savings up front.

Last verified October 30, 2026. Street rates from ratellow.com/api/rates, lastUpdated October 29. Overnight raised to 2.50% on October 28, effective October 29; big-bank prime 4.70%. Payments use Canadian monthly compounding, semi-annual not in advance. Scenario interest totals are modeled on an adjustable-payment variable with remaining amortization reset at each step: gentle 6/3/51 months at 3.74/3.99/4.24; cuts 2/3/3/52 months at 3.74/3.49/3.24/2.99; hikes 4/3/3/3/47 months stepping a quarter point from 3.74 and finishing at 4.74.