Fixed, floating or worse?

As you’ve likely noticed, a common question from the unvarnished rabble who migrate to this site is, “should I go floating rate or lock in?”

The answer varies. Every household is different. Bu we now know this…

The Bank of Canada (say economists, with one voice) is done. No more cuts. Not this month. Not in 2026. In fact one major bank believes the CB will raise (yes, hike) rates twice in the second half of the coming year. Inflation is expected to rekindle. The spendy federal government is heaping on stimulus. We have a trade war that might get worse.

So if rates are not going down – and might even go up – how is this a question any more? There’s no benefit to going variable unless rates decline, and reason to lock in if they might go up – or the rate is compellingly lower.

Let’s look at the cheapest Big Bank’s current rates (TD). The three-year fixed is 4.19%. The fiver is 4.29%. The five-year variable is 4.14%. Unless you have a million-dollar mortgage, there is scant difference in monthly payments. And if you choose fixed, why not add two years of assurance by paying a skinny 10 basis points more?

As for the VRM, it’s marginally cheaper – but also floats with the prime rate. If Scotia is right, borrowing variable could look like a mistake about this time next year.

But wait. What if all the PhD eggheads in those bank towers don’t get it? Could they be wrong?

Sure. Two reasons.

First, Trump. He wants lower rates to paper over the damage from his tariffs, make financing the massive US debt cheaper and inflate asset values so people will be diverted as he cancels democracy. Remember that he is moving to take over the Fed, chunk by chunk, and gets to install a new boss in the Spring

If the States crashes rates, our dollar goes up (as theirs falls further) exacerbating the trade situation. Our guys might have to respond, as they have done historically more than 90% of the time.

Second, what if we have a real estate recession?

A unit of the University of Ottawa this week claims that crashing housing construction and ghosted buyers are already hurting employment, with the potential for a full-blown disaster. “Tens of thousands of jobs are vanishing,” says a report from the Missing Middle Initiative. “The construction slowdown now equals 35,377 lost person-years of employment in the first 9 months of the year, and the losses are accelerating quarter after quarter.”

Ontario is the engine of the Canadian economy, due to sheer population. And residential real estate provides a lot of fuel for that beast. Housing starts in the GTA and southern Ontario have officially croaked. Last year was terrible, but this one is worse – condo sales down 51%, houses with dirt off 43% and overall starts lower by 34%. It’s not just condos. Not just Toronto.

Source: Missing Middle Initiative, University of Ottawa

But these guys also say, “the real crash is still ahead.”

“Unfortunately, given the state of new home sales, things are going to get worse before they get better. Housing starts are a lagging indicator, as the CMHC only considers a unit “started” when a building’s foundation is 100% complete, so they often reflect market decisions several years prior, when the decision to build was made. Pre-construction housing sales are a better indicator of the market’s current health and are indicative of future housing starts.

“Over the first nine months of 2025, relative to 2021-24 averages, pre-construction condo apartment sales are down 89%, and pre-construction ground-oriented sales are down 65%. This is a clear indication that Ontario’s housing situation will get worse before it gets better. Market weakness continues to not be isolated to the condo market.”

The residential construction business has been warning of 100,000 job losses (mostly in the trades) in 2026 and beyond as construction grinds to a halt – given the massively-weak sales to date. People in this region (as in Vancouver and elsewhere) have basically stopped buying new homes and are largely shunning the resale market. That also puts the livelihood of 70,000 GTA realtors at risk, as well as the income tax flowing from them.

This is the stuff recessions are made of. And in a recession the central bank has one big hammer to pull out of its tool belt – rate cuts.

So, there ya go. If you wish payment security and figure our busy little prime minister will figure this all out, go fixed. If you believe the economists suck, Trump wins and we’re all kinda doomed, go variable.

Of flip for it. Equally accurate.

About the picture: “Thank you for sharing your experience and expertise with us. You are a rock in turbulent times,” writes KrisTea. “We are all lucky to have you. Although I appreciate multiple perspectives and healthy debate, I wish the dogs in the comments section were a little more …domesticated? I have no idea how you put up with it. I admire your dedication, tenacity, patience, humour, but most of all your ethical moral code. Here is a picture of one of the many ‘wild ones’ that visit our balcony throughout the day. Let’s call him ‘Squirrelly’. (Note backwards glance). A name fitting to some of the sentiment shared in the comments section. Thanks for ‘keeping it real’ in a storm of misinformation.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/12/02/fixed-floating-or-worse/