Is a variable mortgage rate still worth considering after the Bank of Canada’s rate hike?

Variable-rate mortgages were having a moment – until the Bank of Canada raised its trendsetting interest rate last week, citing concerns about high oil prices.

Canadians had been flocking to variable rates over the past few months as turmoil in the bond market pushed up fixed mortgage rates. In contrast, variable rates, which are pegged to the Bank of Canada’s headline rate, had remained largely steady, making them increasingly cheaper compared to locking in.

Nearly half of consumers taking out or renewing a mortgage in 2026 signed up for a variable one, as of September, compared to less than 10 per cent who did so in 2024, according to data from National Bank of Canada. The number of homeowners choosing long-term fixed-rate mortgages hit record lows last month.

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But variable rates inched up a notch last week, after the Bank of Canada raised its benchmark interest rate for the first time in three years from 2.25 per cent to 2.5 per cent.

The potential of a few more hikes in the coming months, has left mortgage shoppers wondering whether a variable rate is still worth it.

The answer hinges on a number of variables, including risk tolerance, the availability of financial buffer room, and whether the borrowers are first-time homebuyers or more experienced homeowners. But going variable might still turn out to be the cheaper option for many mortgage shoppers, especially for those choosing longer, five-year terms, according to David Larock, mortgage broker and owner of Integrated Mortgage Planners Inc.

For starters, variable rates are still considerably lower than fixed rates.

“A decent variable rate can still be had in the high 3 per cent range,” said Mr. Larock. “And most fixed rates are available in the high 4 per cent range.”

Fixed rates are influenced by bond yields, which currently reflect investors’ dreary expectations about inflation, global turmoil and markets, Mr. Larock said. (A bond yields represents the return investors expect on bonds.)

The Bank of Canada raises its key rate to cool inflation pressures. But bond yields, which reflect investors’ expectations about longer-term borrowing costs, typically move in anticipation of what central banks might do.

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Desjardins senior economist Kari Norman said the expectation has long been for Canada’s central bank to deliver a second 25-basis-point increase in December, followed by a pause.

Mr. Larock estimates the bond market is pricing in another three-to-four Bank of Canada rate hikes by the end of next year. But if those increases don’t actually happen, borrowers who lock into a fixed rate will end up paying more unnecessarily.

Choosing a fixed rate is essentially a bet that interest rates will remain elevated for much of the mortgage term, said Toronto-based mortgage broker Ron Butler.

“When you lock into a three-year [fixed term] at 4.69 per cent, you’re betting that the Bank of Canada will stay above that.”

That’s not a guaranteed outcome. Currently, high oil prices tied to the wars in Iran and Ukraine are raising transportation and production costs, which could feed through to higher prices across retail and food, said Ms. Norman. Countertariffs add further upward pressure.

A sooner-than-anticipated resolution to those conflicts could ease those same pressures and make more rate hikes unnecessary, or even create the conditions for rate cuts, according to Ms. Norman.

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Still, placing a bet that a variable rate will turn out to be the cheaper option isn’t the right approach for everyone.

It’s reasonable for borrowers with little financial wiggle room to opt for fixed rates, Mr. Butler said.

“Those people that say, well, I can afford 4.59 per cent, but I can’t afford a penny more, and my actual budget would blow up and I’d be in danger of losing my house.”

A fixed rate would also make sense for those who’d be up at night worrying about a possible mortgage rate increase, according to Mr. Larock.

For first-time buyers, for example, the peace of mind might simply outweigh any potential savings offered by variable rates. A first home comes with a lot of unexpected expenses and having a predictable payment offers some stability, he said.

Still, Mr. Larock remains bullish on variable rates.

“Over a long-term horizon, variable rates do tend to save more money,” he said.