Why Variable-Rate Mortgages Have Historically Beaten Fixed Rates

For decades, Canadian homeowners have debated the same question: fixed or variable? The allure of a fixed rate is powerful — certainty feels good. Yet the long-term data tells a different story. Over the past 40+ years, variable-rate mortgages have cost less than five-year fixed rates the overwhelming majority of the time.

Research by York University professor Moshe Milevsky found that from 1950 to 2007, borrowers who chose variable rates saved money approximately 89–90% of the time compared with those who locked into five-year fixed rates. More recent data covering 1975–2026 shows a similar pattern: variable rates were lower in roughly 90% of years, with an average spread of about 1.5–2 percentage points in favour of variable.

The pattern is not random. Fixed rates embed a "premium for predictability." Lenders charge extra for the insurance of rate certainty. Variable rates, tied to the Bank of Canada's overnight rate, move with the economy. Over long periods that include both rising and falling rate cycles, the lower average cost of variable has usually won.

A Clear Illustration: $1 Million Mortgage Starting in 2010

Imagine you took out a $1,000,000 mortgage in early 2010 with a 25-year amortization. Two paths, using simplified but realistic historical averages:

• Fixed path: Renewing successive five-year fixed terms. Blended average rate ≈ 4.75%.
• Variable path: Floating with the prime rate. Blended average rate ≈ 3.25%.

Monthly payment comparison (approximate): fixed at 4.75% ran roughly $5,700–$5,800/month early on; variable at 3.25% ran roughly $4,850–$4,950/month. The monthly difference starts around $800–$900. Over 15–16 years, cumulative interest savings on the variable mortgage typically land in the range of $180,000 to $220,000.

What If Those Savings Were Invested?

Suppose the homeowner who chose variable diligently invested the monthly payment difference into a low-cost S&P 500 index fund. From early 2010 through October 2026, the S&P 500 delivered a cumulative total return of roughly 800–900% (approximately 14% annualized).

Investing roughly $850/month for 16 years at that return rate would have grown to approximately $700,000–$800,000. Even using a more conservative 10% annualized return, the same monthly investment produces roughly $380,000–$420,000.

When Fixed Rates Win

Variable rates do not always win. The period from mid-2022 through 2023 was painful for variable-rate holders. The Bank of Canada raised its overnight rate from 0.25% to 5.00% in roughly 18 months — one of the fastest tightening cycles in Canadian history. Fixed-rate holders during that period were insulated.

The key insight is that fixed rates win in sharp, sustained rising-rate environments — and variable rates win in most other environments. The challenge is that no one reliably predicts rate cycles in advance. This is why the choice is ultimately a risk-tolerance decision, not purely a mathematical one.

What This Means for Your Renewal or Purchase Today

As of late 2025 and into 2026, the Bank of Canada has been easing rates following the 2022–2023 tightening cycle. Variable rates have become more competitive again relative to fixed. Key questions to consider:

• How long is your time horizon? The longer you hold the mortgage, the more the historical advantage of variable tends to assert itself.
• What is your cash-flow flexibility? Variable rates require the ability to absorb payment increases if rates rise.
• Are you planning to break the mortgage early? Variable-rate penalties are typically three months of interest — far lower than the Interest Rate Differential penalties on fixed mortgages.
• What does the current rate environment suggest? When the Bank of Canada is in an easing cycle, variable rates tend to fall further.

The right choice depends on your personal financial situation, risk tolerance, and the current rate environment. A mortgage broker can model both scenarios for your specific numbers.