Canadian Variable-Rate Mortgages Surge As BoC Recreates Renewal Trap

Canadian borrowers are aggressively returning to variable-rate loans after hitting record lows just a few years ago. Bank of Canada (BoC) data shows uninsured mortgage funds advanced—cash lenders provide for originations, renewals, and refinancing—hit a new peak in January. While the overall funding reached a monthly high, annual growth is slowing, masked by some of the strongest variable-rate loan activity in years. 

Canadian banks advanced $38.3 billion in uninsured mortgages in January, 3.3% (+$1.2 billion) higher than last year. The massive volume makes it the largest January on record, but the trend is starting to look a little tired. The annual growth rate is the weakest in two years, suggesting another market indicator may have just peaked for the next five years.

Canadians are flocking to variable-rate mortgages again. Nearly 45% of the funds advanced were for these loans, a sharp climb from the record low of 4.9% in July 2023. End-users in Canada have historically opted for fixed rates, choosing security to avoid the unpleasant surprise of volatility. It wasn’t until 2020 that record rate cuts resulted in a speculative boom, where the country saw variable rates capture the majority of the market for the first time. This trend peaked at nearly 60% at the start of 2022, right before plunging with the rate hike cycle. 

As for the recent record volume of mortgage funds, it follows a previous record set roughly five years prior. In other words, this isn’t new demand but a combination of the last of the low-rate renewals converging with pre-construction financing for agreements made years prior.

Bank of Canada Misstep Means Another Five Years of Renewal Traps

An abrupt widening of the spread between variable and 5-year fixed-rate mortgages is likely behind the move. The average 5-year fixed-rate mortgage was 4.37% back in September, just 10 basis points (bps) higher than variable rates. That same fixed rate was largely unchanged at 4.33% in January 2026, but variable rates were 47 basis points lower, widening to nearly 5x the previous spread over just four months. 

The gap was driven largely by the BoC rate cut in October, a decision the central bank itself later flagged as uncertain policy. By aggressively cutting rates and widening this spread, the BoC is inadvertently recreating the same rate-cut trap it set during the 2020 boom. Borrowers are once again piling into variable-rate loans, setting the stage for another wave of vulnerable renewals five years down the road. This cycle is even riskier; shifting policy to accommodate these borrowers reintroduces the same problem but adds moral hazard. The expectation is now that policy will manage risk, not reflect actual monetary progress.