Fixed vs. variable mortgages: Which is right for you?
Choosing between a fixed rate and a variable rate is one of the first big decisions you will make when getting a mortgage in Canada. It affects your monthly payment, your long-term interest costs, and how much stress you can expect when interest rates move.
How a fixed-rate mortgage works
With a fixed-rate mortgage, your interest rate is locked in for the entire term — commonly 5 years. Your payment stays exactly the same from your first month to your last, no matter what happens to the Bank of Canada rate.
- Predictable payments make budgeting simple
- You are protected if rates rise
- Rates are typically higher than comparable variable rates
- Breaking the mortgage early usually triggers a large penalty
How a variable-rate mortgage works
A variable-rate mortgage is tied to your lender's prime rate, which moves up and down with the Bank of Canada's policy rate. If the policy rate falls, more of your payment goes toward principal. If it rises, more goes toward interest.
- Historically lower average cost over the long run
- You benefit quickly when rates fall
- Your payment split can shift when rates rise
- The penalty to break it is usually just three months' interest
Which one should you choose?
Ask yourself these questions:
- Can my budget absorb a payment increase if rates rise?
- Do I value certainty more than potential savings?
- Am I likely to move or break this mortgage early?
If certainty matters most to you, fixed is the safer choice. If you can tolerate some ups and downs and want the statistically cheaper option over time, variable deserves a look.
Tip: Some lenders allow you to convert a variable-rate mortgage to a fixed-rate mortgage at any time without penalty. That flexibility can be a useful middle ground.
The bottom line
There is no universally right answer — the best choice depends on your finances and your temperament. Compare both options side by side on our mortgage comparison tool, and remember that the lowest posted rate is not always the best deal once prepayment privileges and penalties are factored in.
This article is for informational purposes only and does not constitute financial advice. Rates and product details change frequently — always compare current offers before making a decision.
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