Fixed vs Variable Mortgage Rates: Which Is Winning This Summer?

🏠 Blog Post:

Introduction

The big question for Canadian homeowners this summer: Is it finally time to go variable again?
After nearly two years of soaring interest rates, the Bank of Canada’s recent policy shift is tilting the mortgage landscape. With inflation easing and the economy cooling, August 2025 marks a turning point where variable mortgage rates may once again start outperforming fixed.

Let’s break down how the two compare — and which option is winning this summer.

Fixed Mortgage Rates in August 2025

The average 5-year fixed mortgage rate in Canada sat around 5.05% to 5.15% in August, according to major lenders.

Fixed rates are driven by Government of Canada bond yields, which have been slow to decline despite expectations of multiple BoC cuts this year. Bond investors are pricing in gradual easing, not a sharp drop, keeping fixed rates higher than many hoped.

Pros of Fixed Rates:

• Payment stability and predictability

• Protection from unexpected rate hikes

• Good choice for long-term budget planners

Cons:

• You might miss out on rate decreases

• Heavier penalties if you refinance or break early

• Locked in during a potential easing cycle

Variable Mortgage Rates in August 2025

Variable rates, influenced directly by the Bank of Canada’s overnight rate, are starting to show signs of relief.

After the BoC trimmed its rate to 2.75% earlier this year, and with markets expecting another 25–50 bps cut before year-end, variable rates now average around 4.40% to 4.60% — the lowest they’ve been since mid-2023.

Pros of Variable Rates:

• Potential for lower costs as rate cuts continue

• Easier refinancing flexibility

• Historically outperform fixed over long periods

Cons:

• Payment amounts can fluctuate

• Uncertainty if inflation rebounds

• Harder for tight budgets to absorb short-term shocks

Who’s Winning This Summer?

In August 2025, variable mortgages are slightly ahead — at least for homeowners who can tolerate a bit of rate movement.

The gap between fixed and variable rates is now around 0.50–0.70%, meaning variable borrowers could save $1,500–$2,000 per year on a $500,000 mortgage, assuming rates continue to trend downward.

However, fixed mortgages still appeal to risk-averse borrowers who prioritize peace of mind over chasing potential savings.

Expert Take: What’s Next?

Economists expect the Bank of Canada to lower the policy rate to around 2.25% by year-end, with inflation hovering near 2.4%.
That means variable borrowers may see another small drop before the end of 2025. Fixed rates, on the other hand, will only ease when long-term bond yields catch up — likely later in the year.

If bond yields remain sticky, variable rates could continue outperforming fixed into early 2026.

Which Should You Choose?

Here’s a quick guide:

• Go Variable if you believe rates will continue falling and can manage short-term fluctuations.

• Go Fixed if you’re nearing retirement, on a tight budget, or want payment certainty for the next 3–5 years.

• Hybrid Option: Some lenders offer “split mortgages” — part fixed, part variable — to balance security and flexibility.

Final Thoughts

After years of volatility, the tide is finally turning. For the first time since 2022, variable-rate mortgages are regaining their advantage in Canada’s mortgage market.
Still, the right choice depends on your financial comfort level and time horizon. Work with a trusted mortgage professional to model both scenarios before locking in.

This summer, one thing’s clear: the fixed-rate dominance is fading, and flexibility is starting to win again.