Should I choose a fixed or variable mortgage rate in Canada?

There is no universally better choice. A fixed rate provides rate certainty for the term, while a variable rate can rise or fall with the lender's prime rate. Compare your budget flexibility, risk tolerance, term length, prepayment privileges and penalty formula as well as the rates offered.

What is the difference between fixed and variable mortgage rates?

A fixed mortgage keeps the contracted interest rate unchanged for the term. A variable mortgage is priced relative to the lender's prime rate, so the mortgage rate can move when the lender changes prime. Depending on the product, the payment may change or the principal/interest split may change.

Are variable mortgage rates always lower than fixed rates?

No. The relationship changes over time and by lender and product. A variable offer may be above or below a comparable fixed offer, and the future cost depends on how prime changes during the term.

What is the penalty for breaking a fixed or variable mortgage?

Penalty formulas are contract-specific. FCAC notes that lenders may use three months' interest, an interest-rate-differential calculation or another disclosed formula depending on the mortgage. Ask the lender for an actual payout/penalty quote before making a decision.

What is a trigger rate on a variable mortgage?

For some fixed-payment variable mortgages, a trigger rate is reached when the scheduled payment is no longer sufficient to cover the interest due. The contract determines what happens next, such as a payment increase, lump-sum requirement or other adjustment.

Can I convert a variable mortgage to fixed during the term?

Some variable-rate contracts include a conversion option, but the eligibility, fixed term and rate offered are contract-specific. Check the mortgage agreement and compare the conversion offer with the cost of other available options.

Fixed vs Variable Mortgage Rates in Canada

Compare rate certainty, payment risk, penalties and flexibility

1. The Basics

When you get or renew a mortgage in Canada, you may be offered fixed, variable or combination interest options. The cost difference depends on the actual rates offered, how rates change during the term, product features, and whether you keep or break the mortgage.

                        Quick Definitions
                        Fixed Rate: Your interest rate stays the same for your entire mortgage term (typically 5 years)
Variable Rate: Your rate is usually linked to your lender's prime rate plus or minus a stated adjustment

                    

2. Fixed Rate Mortgages

A fixed rate mortgage locks in your interest rate for the duration of your term. This means your mortgage payment stays exactly the same, regardless of what happens in the economy.

How Fixed Rates Work

When you sign up for a fixed rate mortgage:

You lock in a specific interest rate (e.g., 4.59%)
Your rate cannot change until your term ends (typically 1-10 years, most commonly 5)
Your monthly payment remains constant
You're protected from rate increases

Advantages of Fixed Rates

Predictable Payments: You know exactly what you'll pay every month
Budgeting Easier: No surprises makes financial planning simpler
Peace of Mind: Sleep well knowing rising rates won't affect you
Protection from Rate Hikes: If rates rise significantly, you're protected
Good for Risk-Averse Borrowers: Ideal if you prefer stability over potential savings

Disadvantages of Fixed Rates

Starting-rate relationship varies: A fixed offer may be above or below a comparable variable offer depending on current pricing
Rate remains fixed: Market rates can move during your term, while your contracted fixed rate remains unchanged unless you refinance, blend or otherwise change the mortgage
Prepayment penalty can be significant: The formula and amount are contract-specific; request a current payout quote before breaking the mortgage
Contract restrictions matter: Prepayment, portability and early-break terms can materially affect flexibility

Fixed Rate Terms Available

Lenders may offer fixed terms of different lengths. The rate relationship between terms changes over time, so compare the actual rate, prepayment terms, portability, penalty formula and renewal date for each offer.

Term	Key consideration
Shorter fixed term	Earlier renewal and repricing; useful to compare when you value a nearer decision point.
5-year fixed	A commonly offered benchmark term; compare it with shorter and longer terms rather than assuming it is automatically the best value.
Longer fixed term	More years of rate certainty, with different pricing and early-break considerations.

3. Variable Rate Mortgages

A variable-rate mortgage is commonly priced relative to the lender's own prime rate. Each lender sets its prime rate; it may change in response to market conditions and Bank of Canada policy-rate changes.

How Variable Rates Work

Variable rates are calculated as:

Your Rate = Prime Rate +/- Your Discount/Premium

Example: If prime is 6.45% and you get prime minus 1.0%, your rate is 5.45%

When the Bank of Canada changes its policy rate:

A lender may change its prime rate after market or Bank of Canada policy-rate changes
Your mortgage rate automatically changes
Your payment may change (or stay the same with different principal/interest split)

Two Types of Variable Mortgages

Type	How It Works	When Rate Changes
Adjustable Rate (ARM)	Payment changes when rate changes	Payment goes up or down immediately
Variable Rate (VRM)	Payment stays the same, principal/interest split changes	More goes to interest (or less) but payment unchanged

Important: Some fixed-payment variable mortgages have a trigger rate or trigger point. If rates rise enough, the scheduled payment may no longer cover the required interest; the contract determines whether payments increase, additional funds are required, or the balance is otherwise adjusted.

Advantages of Variable Rates

Can benefit from prime-rate decreases: Your mortgage rate may fall when the lender reduces prime
Transparent pricing relationship: Variable rates are usually expressed as a spread to the lender's prime rate
Different penalty structure: Some variable mortgages use a three-month-interest penalty, but you must confirm the actual contract
Possible conversion feature: Some products allow conversion to a fixed rate under specified terms

Disadvantages of Variable Rates

Unpredictable Payments: Your payment can increase (ARM type)
Budgeting Harder: Uncertainty makes planning more difficult
More uncertainty: You need to understand how the product responds when the lender changes prime
Risk of Rate Spikes: Rates can rise quickly in certain economic conditions
Trigger provisions: Fixed-payment variable products may reach contract-specific trigger points when rates rise

4. Side-by-Side Comparison

Feature	Fixed Rate	Variable Rate
Starting Rate	Market-priced; may be above or below variable	Market-priced relative to lender prime
Payment Stability	Completely stable	Can change monthly
Rate Changes	Never during term	Follows prime rate
Breaking Penalty	Contract may use three months' interest, IRD or another disclosed formula	Often a different formula from fixed; check the contract
Risk Level	Lower rate uncertainty during the term	Higher exposure to prime-rate changes
Potential Savings	Depends on the rate path and offer	Depends on the rate path and offer
Best For	Borrowers prioritizing rate certainty	Borrowers comfortable with rate variability
Typical Discount	Depends on lender, term and product	Prime plus/minus a lender-specific spread

Compare With Scenarios, Not a Forecast

For a fair comparison, calculate both offers using the same mortgage amount and amortization, then test several variable-rate paths rather than assuming the variable rate stays unchanged. Include any likely early-break penalty, portability restrictions and prepayment privileges.

Use the Mortgage Payment Calculator to compare payment scenarios.

5. Why Past Rate Results Do Not Decide Your Next Term

It is easy to find historical comparisons showing one mortgage type outperforming another over a selected period. Those results depend heavily on the start date, term length, discount/spread and rate path. A past average does not tell you which product will cost less during your next mortgage term.

Compare the actual offers in front of youThe fixed rate and term being offered today
The variable spread to the lender's prime rate
How your payment changes if prime rises or falls
Prepayment privileges and penalty formulas
Your expected time in the property and likelihood of breaking the mortgage

No rate forecast is guaranteed. Use scenarios rather than a single prediction. Test what your budget looks like if a variable rate rises, stays similar or falls.

6. Factors to Consider

A Fixed Rate May Be Easier to Manage When:

✓

Have a Tight Budget: Can't afford payment increases

✓

Rate certainty matters: You prefer knowing the contracted rate for the full term

✓

You do not want to rely on a rate forecast: Your budget works at the fixed payment you are accepting

✓

You understand the early-break terms: You have reviewed portability and penalty provisions in case your plans change

✓

Want Predictability: Need to know exact payments for budgeting

A Variable Rate May Be Manageable When:

✓

Have Financial Cushion: Can handle payment increases

✓

Your budget has room for variability: You can absorb changes allowed by the mortgage contract

✓

Can tolerate rate changes: Your budget remains workable across reasonable higher-rate scenarios

✓

You have compared flexibility: The product's penalty, conversion and portability terms fit your needs

✓

Understand the product: You are comfortable with how the rate, payment and trigger provisions work

Decision Framework

                        Ask Yourself These Questions:
                        What happens to my payment and amortization under several higher-rate scenarios?
How much rate uncertainty can my household budget absorb?
What happens to my payment or amortization if rates rise or fall?
How long do I plan to stay in this home?
What's the rate difference between fixed and variable right now?
Do I have a financial emergency fund?

                    

7. Hybrid Options

Can't decide? You can combine both approaches:

Combination Mortgages

Split your mortgage between fixed and variable rates:

Example Split

$500,000 Mortgage:

$300,000 (60%) at Fixed Rate: Stability for most of your payment
$200,000 (40%) at Variable Rate: Potential savings and flexibility

Trade-off: Part of the balance has fixed-rate certainty while the variable portion remains exposed to prime-rate changes; terms can be more complex.

Convertible Mortgages

Start variable, with the option to convert to fixed:

Some variable products include a conversion feature
The eligible fixed term and offered rate are set by the contract/lender
Conversion conditions may differ from breaking the mortgage and shopping externally
Read the conversion clause before relying on this feature

Note: Conversion terms are lender- and contract-specific. Compare the conversion offer, remaining term, any fees and the cost of alternatives before changing the mortgage.

8. Switching Between Rates

Breaking Your Mortgage

The penalties for breaking your mortgage differ significantly:

Mortgage Type	Penalty Calculation	Typical Cost
Variable Rate	Contract-specific; often based on a disclosed interest formula	Ask lender for a current payout quote
Fixed Rate	Contract-specific; may use three months' interest, IRD or another disclosed formula	Ask lender for a current payout quote

When to Review a Possible Switch or Refinance

Your lender provides a current payout/penalty quote and the expected interest or feature benefit exceeds the total switching cost.
You are selling and need to understand whether the mortgage can be ported or must be discharged.
You are considering converting a variable mortgage and want to compare the lender's fixed offer with other available options.
You need to change the mortgage amount or amortization and understand the new qualification and closing costs.

Use the lender's actual penalty quote

IRD calculations vary by lender and contract, including which comparison rate is used. A simple rule of thumb can materially misstate the cost. Ask the lender for the current payout statement and how long the quote remains valid.

Official consumer source

For information about mortgage penalties and your lender's disclosure obligations, see FCAC — Mortgage prepayment penalties.

Calculate Your Mortgage Payments

Use our mortgage calculator to compare fixed and variable rate scenarios.

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Final Thoughts

There's no universally "correct" choice between fixed and variable rates. Your decision should be based on your personal financial situation, risk tolerance, and economic outlook.

Key Takeaways:

Neither fixed nor variable is guaranteed to cost less over your next term
Fixed rates provide certainty and peace of mind
Consider your budget flexibility and risk tolerance
Test several rate scenarios instead of relying on one forecast
Penalty formulas differ by product; compare the actual contract terms
You can combine both with a split mortgage
Review your decision at each renewal

Last reviewed: September 30, 2026

Disclaimer: This guide provides general information for educational purposes only. Interest rates, mortgage products, and economic conditions change frequently. Past performance does not guarantee future results. Always consult with a licensed mortgage professional before making mortgage decisions. The information provided does not constitute financial advice.