By mid‑2025, the Bank of Canada’s overnight policy rate will have fallen to 2.75%, resulting in a prime rate around 4.95%, with projections to decline further by year-end. At the same time, long-term 5‑year Government of Canada bond yields remain volatile, pushing fixed mortgage rates sky‑high, often near or above 6%.
Mortgage Renewals Driving the Shift
In 2025, an estimated 1.5 million mortgages will renew, many initially locked in with ultra‑low rates during the 2020–22 period. Facing spikes in offers, more borrowers are gravitating to variable rates as a hedge.
Why Borrowers Are Leaning Toward Variable Rates
Lower starting rates and rate‑cut potential
Variable‑rate mortgages adjust with prime, so borrowers benefit immediately from any further Bank of Canada rate cuts. Market analysts forecast additional rate cuts through 2025, driving variable rates lower than fixed options by as much as 0.5–0.75 ppt.
As of February 2025, variable rates have nearly aligned with fixed rates, so the potential upside tilts the balance.
Flexibility without heavy penalties
Variable-rate plans often come with minimal break fees, typically just three months’ interest, while fixed rates might incur large IRD penalties. This flexibility is valuable for early movers or those considering refinancing later.
Historical and expected savings
Historically, variable mortgages outperform fixed ones over full cycles when rates decline. In 2025, borrowers banking on further cuts stand to save thousands. For instance, a 1.5% drop on a $500,000 mortgage can save approximately $7,500 annually before tax.
Consumer risk appetite
Risk‑tolerant borrowers, especially first‑time buyers or those renewing soon, prefer variable rate options as a short‑term cash‑flow solution and potential long‑term saver.
What the Data Says: A Pricing and Preference Shift
- Market uptake: Variable mortgage share of new mortgages rose from ~4.2% in 2023 to ~12.9% in early 2024 and continued climbing in 2025.
- Consumers’ renewal choices: Royal LePage’s survey shows 29% plan variable rate at renewal (up from 24%), while only 66% prefer fixed plans, a drop from 75% previously.
- Broker insights: Some brokers report that up to 40% of new loans are variable-rate, a sharp rise from 7% the year before.
Balancing the Benefits vs. the Risks
| Advantage | Key Considerations |
| Lower upfront rates | Subject to future rate increases |
| Penalties for breaking are small | Volatility in bond market could negatively impact fixed rates |
| Ability to convert to fixed | Still requires oversight of market movements |
| Greater monthly cash flow | Volatility in the bond market could negatively impact fixed rates |
- Best suited for: Borrowers who expect to sell or refinance within 2–5 years, or those comfortable with some rate ebbs in anticipation of cuts.
- Less suited for: Risk-averse homeowners or those planning to remain long-term on a stable budget.
How Cannect Can Help
Custom Solutions & Guidance
- Personalized mortgage comparisons based on your goals and market outlook.
- Advice on hybrid options, splitting between variable and fixed, for hedging risk.
- Support during renewal transitions to minimize payment shock.
Market Timing & Awareness
- Stay informed on the Table of Canadian interest rates, bond trends, and policy updates.
- Leverage Cannect’s market tools to evaluate options when portability or flexibility matters.
Conversion & Prepayment Planning
- Use variable rate portability to switch to fixed early with minimal penalty.
- Plan lump-sum payments or refinance strategies to capitalize on savings while protecting against market reversals.
Final Verdict: Is Variable the Right Path in 2025?
Yes—for many Canadian borrowers:
- Navigating renewals in a falling-rate environment
- Wanting lower starting costs and flexibility
- Open to managing variable rate movement with market monitoring
Still, the right choice hinges on your risk appetite and plans. Borrowers focused on stability may lean toward short-term fixed or hybrid options.
Ready to explore?
Cannect helps Canadians evaluate:
- Projected savings between variable, fixed, and hybrid strategies
- Break-even scenarios
- Flexibility needs and risk tolerance
Let’s create a custom mortgage roadmap for you. Reach out—fixed-rate stability or variable-rate savings? The choice is yours to make with confidence.
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