Canada variable rate mortgage 2027: is it time to switch from fixed?
With the Bank of Canada cutting rates through 2026–2027, variable rate mortgages are back in focus for Canadian borrowers. This analysis covers current variable vs fixed spreads, trigger rate risk, and who should consider switching at renewal.
Bank of Canada rate cuts through 2025–2026 narrowed the gap between variable and fixed rates — but variable mortgages are regaining appeal at renewal for borrowers who expect stable or falling rates. Here is what the 2027 numbers actually look like.
Variable vs fixed: current spread comparison
| Product | Approx. rate (2027) | Best for |
|---|---|---|
| Variable (Prime − 0.75%) | ~5.20% | Short hold; expecting further rate cuts; higher risk tolerance |
| 1-year fixed | ~5.50% | Expecting significant cuts; willing to renew frequently |
| 3-year fixed | ~5.10% | Mid-range certainty; planning to refinance or sell in 3 years |
| 5-year fixed | ~5.30% | Payment certainty; renewal risk averse; long hold plan |
Trigger rate: how to calculate yours
Example: $2,000/month payment ÷ ($380,000 ÷ 12) = 6.32% trigger rate. If variable rate exceeds 6.32%, each payment covers interest only — no principal paid.
External references
- Bank of Canada — Prime and overnight rate history
- OSFI — Trigger rate guidance for lenders
- FCAC — Mortgage renewal guide
- CMHC — Mortgage characteristics data
- Bank of Canada — Bond yield data
Common questions
How does a variable rate mortgage work in Canada?
Canadian variable rate mortgages are priced as Prime ± a spread (e.g., Prime − 0.75%). When the Bank of Canada changes its overnight rate, Prime moves with it (Prime = overnight rate + 2.20%), and your variable rate adjusts automatically. Most Canadian variable mortgages keep the payment fixed and adjust the principal/interest split — this is called an adjustable-payment variable (APV) or fixed-payment variable (FPV) depending on the lender. The Bank of Canada interest rate page shows current Prime and overnight rates.
What is the trigger rate on a variable rate mortgage?
The trigger rate is the interest rate at which your fixed payment no longer covers the interest due — meaning your payment covers no principal and your amortization grows. If rates exceed the trigger rate, many lenders will contact you to increase your payment or make a lump sum. The trigger rate crisis of 2022–2023, when rates rose 4.25 percentage points in 18 months, caught many borrowers off guard. Calculate yours: trigger rate = fixed payment ÷ (current mortgage balance ÷ 12). OSFI's trigger rate guidance explains lender obligations.
Is a variable rate mortgage a good idea in 2027?
With the Bank of Canada cutting rates through 2025–2026 and Prime at lower levels in 2027, variable rate discounts (Prime − 0.5% to Prime − 1.0%) are competitive. The key question is: what is the probability of further rate cuts vs a reversal? If you plan to renew or sell within 2–3 years and believe rates are stable or falling, variable can save money. If you need payment certainty — especially with tight cash flow — a 3-year or 5-year fixed provides stability. RateHub and RateSupermarket show live variable and fixed rate comparisons.
What happens to my variable rate mortgage at renewal in 2027?
At renewal, you can switch to any term — variable or fixed — without penalty, at rates available on the renewal date. If rates have fallen since your original mortgage, your new fixed rate will reflect the lower environment. The renewal letter typically arrives 21–120 days before maturity; do not auto-renew without shopping — lenders rarely offer their best posted rates at renewal. FCAC's mortgage renewal guide explains your rights and the renewal process.
What is the spread between variable and fixed rates in 2027?
In early 2027, 5-year fixed rates are running approximately 0.5–1.0% above variable rates for well-qualified borrowers — a narrower spread than historically typical (usually 1.0–1.5%). When the spread is below 1%, the risk-adjusted case for variable weakens: you take on rate risk for limited interest savings. The Bank of Canada bond yield data and CMHC mortgage characteristics data track the historical spread relationship.
Model your variable payment at different rates on the Canadian mortgage calculator — or read the renewal shock guide for what to expect at renewal.