Last Wednesday I was on the phone with a client comparing two high-ratio options. One of them was a featured special at 4.04%. By Friday morning that same special was 4.29%.

Nothing about her file changed. Her income didn’t change, her credit didn’t change, the property didn’t change. The market changed underneath her.

She wasn’t alone. More than a dozen lenders announced fixed-rate increases of 10 to 15 basis points effective Friday, and two of the big banks I place a lot of business with were among them.

If you’ve been waiting for the Bank of Canada to move before you make a decision, this is the week to understand why that’s the wrong thing to be watching.

Fixed rates and variable rates don’t take orders from the same boss

This is the single most useful thing a mortgage borrower can understand, and almost nobody explains it.

Variable rates follow prime, and prime follows the Bank of Canada. When the Bank moves, your variable rate moves — usually within days.

Fixed rates follow the bond market. Specifically, government bond yields. Lenders fund fixed-rate mortgages off bonds, so when yields rise, the cost of offering you a 5-year fixed rises, and the rate sheet follows. No Bank of Canada meeting required. No announcement, no press conference, no headline most people will read.

That’s exactly what happened last week. Bond yields jumped across most of the developed world in a single day, and lenders repriced two days later.

What pushed yields up

Two things, and neither is really about Canada.

Oil. Crude is still camped above US$100 — roughly $103 on WTI and over $120 on Brent — well into a conflict that shows no sign of resolving. The Bank of Canada said back in the spring that oil at $100 could require tighter monetary policy, possibly consecutive increases to the policy rate. It also said the worst of a fuel-price shock takes a few quarters to work through the supply chain, which means the inflation from today’s diesel prices hasn’t fully shown up yet.

The global bond sell-off. The world’s most important bond, the US 10-year Treasury, is pushing toward 5% — a line it hasn’t closed above since 2007. Investors are selling US government debt over deficits, tariffs and political interference, and they kept selling even when Washington stepped in to buy bonds back. When the US bond market gets hit, Canadian yields rarely escape. Our bond market is a rowboat beside their aircraft carrier.

None of that is a Canadian housing story. But it lands on Canadian fixed rates anyway.

The part that concerns me most: the discount you’re getting isn’t real yet

Lenders have been holding fixed rates near 4% on some of the thinnest margins I’ve seen. Their funding-cost spreads are compressed — meaning they’re passing most of the bond move through to you and keeping very little.

Thin margins never last. When funding costs keep climbing, the first thing to go isn’t the lender’s profit; it’s your discount.

So a fixed rate starting with a 4 is still available today. I don’t assume that’s true in a month.

Fixed versus variable: the honest version

For most of the last two years, the case for variable was simple — cuts were coming, and floating meant you’d ride them down. The forward market has flipped. It’s now pricing something in the order of five increases over the next twelve months rather than cuts.

That changes the math, but it doesn’t make the answer automatic, and I want to be straight about the nuance here.

If fixed rates keep climbing, variable actually gets more interesting, not less. Here’s why: variable is priced off prime, and prime only moves when the Bank of Canada moves. If fixed rates rise to the point where they already sit above where variable would land after the expected hikes, then you’re paying up front for protection you may not need. At that point the fixed premium stops being insurance and starts being a cost.

That’s a real scenario, and it’s where variable becomes a legitimate choice for the right borrower.

The catch is that it depends entirely on the hikes stopping roughly where the market thinks they’ll stop. They might not. If oil stays where it is and inflation follows fuel prices up the way the Bank has warned it could, variable holders wear every increase in full, immediately, with no ceiling. And most Canadian households are carrying more debt and less job security than they were in 2022 — the last time a majority of borrowers went variable right before rates ran.

So here’s how I’d frame it today:

Fixed makes sense if you’re holding the mortgage for the term, you want a payment you can plan around, and your budget doesn’t have room for a few increases in a row. Right now the 3-year is doing the most work in my conversations — you get the certainty without locking into a long term at what may turn out to be a cyclical peak.

Variable is worth a serious look if you may sell or pay the mortgage out mid-term (variable penalties are typically three months’ interest, versus an interest-rate differential on fixed that can run into five figures), your horizon is short, or fixed rates in front of you have already priced in more tightening than you think we’ll get — and you genuinely have the cash flow to absorb being wrong.

What I don’t accept is the idea that more than half of Canadian borrowers should be floating right now, which is roughly where the national numbers sit. For that many people to be taking that much rate risk, the reward has to be there. On today’s forward curve, for most of them, it isn’t.

What I’d actually do in the next ten days

• Renewing within 120 days? Get a rate hold now. It costs nothing, it’s not a commitment, and if rates fall you get the lower one anyway. This is the cheapest insurance in the business and most people let it expire unused.
• Buying? Get the hold before you shop, not after you have an accepted offer. Your budget is set by your rate, and last week just showed how fast that can shift.
• Sitting on a pre-approval? Check the expiry date. Most run 90 to 120 days. A hold that lapsed in August is not protecting you in September.
• In a variable now? Run the number: know what one 25 bps increase does to your payment, and what three do. If the answer makes you uncomfortable, that’s your answer about whether to convert.
• Renewal letter from your bank in hand? That posted rate is a starting point, not an offer. It’s still worth shopping, even in a rising market — arguably especially in one.

The bottom line

Nobody has next year’s newspaper. Rates could pivot lower and make all of this look overwrought. But you don’t get to make decisions with hindsight; you make them with the rate sheet in front of you.

Today’s rate sheet says fixed rates are moving up, the cheap ones are moving first, and a rate hold is free. That’s enough to act on.

If your renewal, purchase or refinance lands in the next four months, let’s lock down what’s available while it’s still available — and talk through whether fixed or variable actually fits your situation, not the average one.

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