Should You Go Fixed or Variable? A 2025 Mortgage Guide for Uncertain Times

Fixed or Variable? Navigating Uncertainty in the Shadow of a U.S. Trade War

With the latest GDP data from Statistics Canada showing surprising strength for a second straight month, Canadians are asking the big question: Should I go fixed or variable on my mortgage right now?

The short answer: it depends on your tolerance for volatility and your financial flexibility — because we’re heading into another unpredictable phase of U.S.-Canada trade tensions under President Trump’s latest tariff threats

Trade War Tensions Heating Up

President Trump announced what he’s calling “the big one” — a sweeping set of tariffs commencing in April. If the past is any guide, we’ll see initial market chaos followed by Trump touting a “deal” that pulls back on some tariffs.

This cycle of disruption and half-resolutions has become the norm, and we can expect more of it — for at least the remaining days of his presidency.

This environment of policy unpredictability, coupled with economic fragility, makes it tough to rely on traditional forecasting models for mortgage rates. Still, here’s how the current landscape breaks down.

Variable-Rate Mortgages: A Smart Play for the Flexible Borrower?

I believe the Bank of Canada (BoC) will continue easing rates, even if it pauses short-term. Here’s why:

• Tariff Anxiety: The BoC is watching U.S. policy closely — and acting accordingly.
• Rate Trajectory: The policy rate sits at 2.75%, with potential to fall toward 2.00% if economic conditions worsen, as seen in past downturns.
• Inflation Priorities: Yes, inflation has ticked up — but the BoC is more worried about deflation and will tolerate temporary inflation spikes.
• Mortgage Renewal Shock: About 1 million Canadians are renewing ultra-low pandemic-era mortgages this year. BoC cuts could ease this transition pain.

Pros of Variable Rates:

• Immediate benefit from BoC rate cuts
• Lower break penalties
• Option to convert to fixed later (no fee)
• Fixed-payment variable options add predictability

Cons of Variable Rates:

• Current variable rates are higher than fixed
• Qualification is tougher
• Potential for rates to rise unexpectedly
• Less attractive rates when converting to fixed

Fixed-Rate Mortgages: Certainty in a Storm

For those who prioritize peace of mind, a fixed rate might be the right call — especially given how low fixed rates have become again.

• Rate Decline: Fixed rates have declined in recent weeks, as bond yields dip in anticipation of economic headwinds.
• Budgeting: Predictable monthly payments are especially helpful for first-time buyers or anyone on a tight budget.

I recommend fixed terms of 3 to 5 years, which offer a solid balance of low rates and long-term protection.

Pros of Fixed Rates:

• Long-term stability
• Currently lower than variable in many cases
• Easier porting to new homes
• Protection during Trump’s trade turmoil

Cons of Fixed Rates:

• No benefit if rates drop further
• Higher penalties if you break the mortgage
• No switch back to variable allowed

The Market’s Take: More Rate Cuts Ahead

The Bank of Canada held its policy rate steady at 2.75% during its April 16 meeting, as widely expected. However, the tone of the announcement confirmed what many market watchers suspected: more rate cuts are likely coming.

While the BoC acknowledged recent upside surprises in GDP and inflation, it also emphasized growing risks tied to global trade uncertainty and consumer stress from mortgage renewals. The central bank made it clear it’s prepared to act if economic momentum stalls — and markets are listening.

• Bond market reaction: Yields fell modestly after the announcement, reflecting expectations that the BoC will cut rates later this year.
• Cut odds rising: Markets now see a 60–70% chance of a cut by July, with a strong bias toward at least one 25-basis-point cut by fall.
• Credit spreads widening: Even though government bond yields have dipped, lenders are pricing in more risk, which is keeping fixed mortgage rates from falling significantly.

What It Means for Borrowers:

• Variable rates: Likely to trend down later this year, reinforcing the appeal for borrowers comfortable with short-term uncertainty.
• Fixed rates: May decline slightly but face headwinds due to lender caution and widening spreads.

We’re in a wait-and-see phase, but the bias is toward easing, especially if tariff disruptions escalate or growth softens.

Bottom Line: Fixed for Stability, Variable for Strategy

If you’re highly rate-sensitive and have room to ride out some bumps, variable may win in the long run. But if you want to lock in and forget about the volatility? Fixed is a safe haven in a stormy economy.

Whichever route you’re considering, I’m here to help you run the numbers, get pre-approved, or renew your mortgage with confidence.

Let’s chat — and get your mortgage working for you.

Caleb O'Connor, CFP
Partner | Financial Planner | Mortgage & Lending Lead, Innova Wealth Partners
Mortgage Agent Level 1, HQ Mortgages Inc.

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This publication is for informational purposes only and shall not be construed to constitute any form of advice. The views expressed are those of the author alone. Opinions expressed are as of the date of this publication and are subject to change without notice and information has been compiled from sources believed to be reliable. This publication has been prepared for general circulation and without regard to the individual financial circumstances and objectives of persons who receive it. You should not act or rely on the information without seeking the advice of the appropriate professional.