Fixed vs. variable: which is right for you?
How fixed and variable mortgage rates work in Canada, what they cost to break, and how to choose the one that fits you.
Key takeaways
- Fixed: same rate and payment for the whole term.
- Variable: your rate moves with your lender's prime rate.
- Fixed mortgages usually cost more to break early.
How a fixed rate works
Your interest rate stays the same for the whole term. Your payment doesn't change, which makes budgeting easy. You pay for that certainty: fixed rates can cost more to break early.
How a variable rate works
Your rate moves with your lender's prime rate, which tends to follow the Bank of Canada's policy rate. Depending on your mortgage, either your payment changes when rates move, or your payment stays the same and the share going to interest changes.
What it costs to break each one
If you sell, refinance or switch before your term ends, you'll usually pay a prepayment penalty:
| Typical penalty | |
|---|---|
| Variable | About three months of interest |
| Fixed | The greater of three months of interest or the "interest rate differential" (IRD), which can be much higher |
Each lender calculates penalties its own way. Ask for the exact formula before you sign.
Which one suits you?
Fixed may suit you if…
- You want a payment that never changes during your term
- A rate increase would stretch your budget
- You're confident you'll keep the mortgage for the full term
Variable may suit you if…
- You can handle your payment or interest going up
- You might sell or refinance before the term ends
- You want a lower penalty if you break the mortgage
There's no universally "right" choice. The best one depends on your budget, your plans and how comfortable you are with change. A broker can compare both options with real numbers for your situation.
This guide is general information, not financial advice. Rules and products change, and every situation is different. A licensed mortgage broker can tell you what applies to you.