Fixed vs Variable Mortgage Rate
The most debated question in Canadian mortgages. We compare fixed and variable rates head-to-head with real numbers, historical data, and a clear decision framework for your situation.
The Short Answer
Choose Fixed if:
You need payment certainty, are stretching affordability, or rates are near historic lows and you want to lock in.
Choose Variable if:
You can handle payment fluctuations, plan to pay off aggressively, or believe rates will decrease from current levels.
Historical note: Over the past 25 years, variable-rate borrowers have paid less interest in about 70–80% of 5-year periods — but the 2022–2023 rate hike cycle reminded many why payment certainty has value.
Head-to-Head Comparison
Fixed Rate
Payment stays the same for the entire term
Easy to budget — no surprises
Protects against rate increases
Peace of mind for risk-averse buyers
Usually higher starting rate than variable
Larger penalty to break (IRD can be $15k+)
Miss out if rates fall during your term
Less flexible for aggressive prepayment
Variable Rate
Often lower starting rate — more goes to principal
Penalty to break is just 3 months' interest
Can convert to fixed at any time
Benefits immediately if prime rate falls
Payment can increase unexpectedly
Harder to budget with uncertain payments
Stressful during rate-hike cycles
Less suitable if borrowing at your ceiling
Real Numbers: $500k Mortgage, 5-Year Term
Comparing a 5-year fixed at 5.5% vs a 5-year variable starting at 4.9% (prime - 0.6%), assuming variable rate stays flat for simplicity.
If rates stay flat: Variable saves ~$14,700 in interest over 5 years and builds $6,360 more equity. However, if variable rates rise by 1%, the savings disappear. If they rise by 2%, fixed becomes cheaper.
Run Your Own Scenario
Use the calculator below to compare both rates for your specific mortgage amount.
Fixed Rate Scenario
Variable Rate Scenario
Decision Guide: Which Is Right for You?
You're a first-time buyer stretching your budget
You need payment certainty. A 1% rate increase adding $400–$500/month could strain your finances.
You have significant income buffer and financial stability
You can absorb payment fluctuations and benefit from the historically lower starting rate.
You plan to sell or move within 3–4 years
The 3-month interest penalty for breaking a variable is far lower than the IRD penalty on a fixed mortgage.
You're renewing and rates are near historic highs
A 1 or 2-year fixed term or variable lets you lock in longer at lower rates when the cycle turns.
You're risk-averse and sleep matters more than savings
The peace of mind from a fixed payment is genuinely valuable. The premium you pay is your cost of certainty.
Frequently Asked Questions
Studies of Canadian mortgage data show that variable-rate borrowers have paid less interest in roughly 70–80% of 5-year periods since the 1990s. However, the 2022–2023 period was a major exception — borrowers who chose variable in 2021 saw rates rise from ~1% to ~6.7% within 18 months, adding $1,000+/month to payments on large mortgages.
Fixed-rate mortgage penalties are the higher of:
- 3 months' interest, OR
- The Interest Rate Differential (IRD) — the difference between your rate and today's rate, multiplied by the remaining term and balance
IRD penalties are often $10,000–$30,000+ for mortgages with 2+ years remaining in a falling rate environment. Variable penalties are always just 3 months' interest (typically $3,000–$6,000).
Yes — most variable-rate mortgages allow you to convert to a fixed rate at any time during your term, without penalty. You'll be offered the current fixed rate for the remaining term. This is a key advantage: you get the low variable rate while the option to lock in exists.
In Canada, 'variable' typically means your payment stays fixed but the interest/principal split changes with rates. 'Adjustable' means your actual payment amount changes when prime rate moves. Most major banks offer adjustable-rate mortgages where the payment adjusts — which provides a clearer picture of your amortization trajectory.
A shorter term (1–2 year fixed) is useful when rates are expected to fall significantly and you want to lock in at lower rates sooner. A 5-year term offers the longest payment certainty and often a rate discount for the longer commitment. Most Canadians choose 5-year terms for simplicity, but the right choice depends on your outlook on rates and plans to move or refinance.
Interest Rates Guide
How mortgage rates are set, what moves them, and how to get the best rate.
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