As bond yields rise, how should borrowers choose between variable and fixed mortgages?

Bond yield increases may affect Canadians shopping for a new mortgage or renewing an existing one. Experts say market turbulence is shifting some borrowers’ preferences. Canadians have traditionally favoured fixed-rate mortgages for predictable monthly payments, but rising yields have led some families looking to save in the short term to consider variable rates. Canada is in a major renewal wave, with more than one million households renewing or close to renewing this year.

Variable-rate mortgages are driven directly by the Bank of Canada’s overnight rate, while fixed mortgage rates also respond to bond yields. Bond markets have been volatile in recent months amid global uncertainty and high government debt, with yields reaching multi-year highs in several markets, including the U.S. 10-year Treasury and Canadian bonds. On Thursday, Canada’s 10-year government bond yield reached 3.85 per cent, while the five-year yield, commonly used as a benchmark for fixed mortgages, rose to 3.55 per cent.

The moves have widened the gap between fixed and variable mortgage rates in Canada. Ratehub.ca said the lowest available five-year fixed rate, the country’s most popular mortgage term, was 4.34 per cent as of Thursday, almost a full percentage point above the lowest variable rate of 3.43 per cent. Jamie David, RateHub’s vice-president of mortgages, said the difference can have a significant effect on monthly payments and has made variable rates more attractive to borrowers seeking lower costs. She said borrower interest in variable mortgages has shifted significantly this year.

David added that variable-rate mortgage inquiries made up 36 per cent of all inquiries to RateHub from January to September, up from 10 per cent during the same period in 2025. Still, Victor Tran, a mortgage and real estate expert at Rates.ca, said fixed rates remain the preference for most borrowers. Variable rates have not risen as much as fixed rates, he said, so more people who can handle some movement are asking about them, but it is not a rush to switch. Tran said most borrowers still want the certainty of fixed payments, particularly when renewing or buying on a tight budget.

David said borrowers should consider their risk tolerance and financial goals before deciding. They should assess whether their household budget could comfortably absorb higher payments if rates rise during the mortgage term, rather than focusing only on today’s rate. Most lenders allow borrowers to convert a variable mortgage to a fixed one during the term without a prepayment penalty, she added, but they would have to take the fixed rate their lender offers at that time.

Fixed-rate mortgages may cost more now, but their payments are predictable and make budgeting easier. Tran said the downside is that borrowers may pay more if rates fall, and breaking a mortgage early can be costly.

David said shorter fixed terms, such as two or three years, may be a compromise for borrowers who want predictable payments but do not want to commit to a five-year fixed mortgage amid rising bond yields. If borrowers expect rates to fall within the next two to three years, she said, a shorter term might be a good option. The trade-off is that rates could be higher when the term ends, leaving borrowers with higher payments at renewal.

David said Canadians should expect continued volatility in bond markets and fixed mortgage rates in the coming days. If the Bank of Canada signals a possible rate hike in its Oct. 28 announcement, or inflation remains elevated because of high energy prices, yields could climb further and push fixed mortgage rates higher, she said. If inflation eases or economic conditions weaken amid ongoing tariff uncertainty, yields could pull back.