Best Time to Refinance Your Mortgage in 2026

When Should You Refinance Your Mortgage in 2026?

If you're a Canadian homeowner considering refinancing, 2026 presents a unique set of circumstances worth understanding. The mortgage landscape has shifted dramatically since the pandemic era, and knowing when to act could save you thousands of dollars.

Current Rate Environment in 2026

The Bank of Canada has paused its rate-cutting cycle and is expected to hold its policy rate steady at 2.25% (with a prime rate of 4.45%) through at least the third quarter of 2026[1][3]. This stability is actually good news for borrowers—it means no more surprises from sudden rate increases, but also no additional relief on the horizon[1].

Advertised 5-year fixed mortgage rates currently range from approximately 3.74% to over 6.5%, depending on your lender and mortgage features[4]. The best available rates are hovering around 3.94% for fixed terms and 3.45% for variable options[1].

What This Means for Your Decision

The rate environment suggests that rates have likely bottomed out. While economists don't expect significant increases in early 2026, they do forecast potential rate hikes beginning in the second half of 2026[2]. This creates a window of opportunity for those considering refinancing.

Understanding Your Renewal vs. Refinancing Situation

Before deciding whether to refinance, it's important to understand the difference:

• Mortgage renewal: Your current term is ending, and you're renewing with your lender or switching to a new one at market rates
• Refinancing: You're breaking your current mortgage early to access better rates or terms before your maturity date

Approximately 1.15 million Canadian mortgage holders will renew in 2026, with another 940,000 scheduled for 2027[1]. If you're among them, your decision timeline is clearer.

Payment Shock Reality Check

If you locked in a mortgage between 2020-2021 at historically low rates (around 1.39%), you're facing significant payment increases at renewal.

Fixed-Rate Borrowers

Fixed-rate borrowers renewing in 2026 will see the largest payment increases—approximately 26% higher[1].

Here's a concrete example[1]:

• Original mortgage: $607,280 home with 10% down, taken at 1.39% in December 2020
• Original monthly payment: $2,224
• New payment at 3.94% (current best rate): $2,800
• Monthly increase: $576 ($6,912 annually)

While this sounds dramatic, remember that you've also paid down principal and built equity, which helps offset the impact.

Variable-Rate Borrowers

Variable-rate borrowers face a more manageable 4% payment increase because they've already absorbed rate hikes over the past few years[1].

Example[1]:

• Original rate: 0.99%, original payment: $2,121
• Rate increased to 2.99% by December 2025 (payment: $2,690)
• Renewing at 3.45% with reduced balance: $2,797
• Monthly increase: $107 ($1,284 annually)

Should You Refinance Before Your Renewal Date?

Refinancing early (breaking your current mortgage) typically involves penalties and costs. You should only consider it if:

1. Your current rate is significantly higher than market rates (typically 1-2% or more difference)
2. The interest savings over the remaining term exceed your prepayment penalty
3. You plan to stay in your home long enough to recoup refinancing costs

Given that current rates are in the 3.74%-3.94% range for fixed terms, early refinancing only makes sense if you're currently locked in at 5%+ rates.

Timing Strategies for 2026

If Your Renewal Is Coming in 2026

Act sooner rather than later. Here's why:

• Current rates are stable and competitive[1][3]
• Economists expect potential rate increases in the second half of 2026[2]
• Lenders typically allow you to lock in rates 120 days before your maturity date
• Shopping around now gives you time to compare offers without pressure

Pro Tip: Contact your lender or a mortgage broker at least 4 months before your renewal date. This gives you time to negotiate and compare options without rushing into a decision.

If Your Renewal Is in 2027 or Later

You have more flexibility. Current forecasts suggest:

• Rates may remain stable through Q3 2026[3]
• Potential rate increases could begin in late 2026 or early 2027[1][2]
• 5-year variable rates are forecast to gradually increase from 3.55% (end of 2025) to 3.71% by end of 2026[2]

Monitor the situation quarterly, but don't feel pressured to act immediately.

Fixed vs. Variable: Which Should You Choose?

Fixed-Rate Mortgages

Advantages in 2026:

• Payment certainty and predictability
• Protection if rates rise in late 2026
• Current rates (3.74%-3.94%) are reasonable compared to historical averages

Disadvantages:

• Higher initial rate than variable options
• No benefit if rates decrease

Variable-Rate Mortgages

Advantages in 2026:

• Lower initial rates (around 3.45%)[1]
• Potential savings if rates decrease
• More flexibility with some lenders

Disadvantages:

• Payment uncertainty if rates rise
• Forecasts suggest potential increases in second half of 2026[2]

Pro Tip: If you choose variable, ensure you can afford payments if rates increase by 1-2%. With forecasts showing potential increases to 3.82% by mid-2027, calculate your worst-case scenario[2].

Key Factors to Evaluate

Before refinancing or renewing, assess:

1. Your financial situation: Can you afford higher payments if rates increase?
2. Your timeline: How long do you plan to stay in your home?
3. Your risk tolerance: Do you prefer payment certainty (fixed) or potential savings (variable)?
4. Your current rate: Compare it to current market rates to determine your savings potential
5. Prepayment penalties: If refinancing early, calculate whether savings justify the cost

Market Outlook for the Rest of 2026

The consensus among economists is cautiously optimistic[1][2][3]:

• Q1-Q3 2026: Rates likely to remain stable at current levels
• Q4 2026 and beyond: Potential for rate increases as inflation trends upward and the economy strengthens
• Early 2027: Possible rate increases if economic forecasts materialize[1]

This suggests that locking in rates in early-to-mid 2026 may be advantageous before any potential increases.

Action Steps for 2026

1. Check your mortgage maturity date and renewal timeline
2. Calculate your current rate and compare to market rates
3. Get pre-approved with your current lender and 2-3 competitors
4. Run the numbers on fixed vs. variable options using your specific situation
5. Lock in early if rates are competitive and your renewal is approaching
6. Monitor economic indicators quarterly if your renewal is further away

Conclusion

The best time to refinance your mortgage in 2026 depends on your specific situation, but the overall environment favors acting sooner rather than later. If your renewal is approaching, current rates are stable and competitive, and the Bank of Canada has signaled a rate hold through at least Q3 2026[1][3]. However, forecasts suggest potential increases in the second half of the year, making early action prudent[2].

For those renewing, expect payment increases—26% for fixed-rate borrowers and 4% for variable-rate borrowers—but remember that these increases are more manageable than feared due to lower rates and increased equity[1]. Whether you choose fixed or variable depends on your risk tolerance and financial capacity, but either way, 2026 offers reasonable rates in a stable environment. Start your renewal process 4-6 months before your maturity date, compare offers from multiple lenders, and make an informed decision based on your long-term financial goals.