Fixed vs variable mortgage: which one fits you?

Choosing between a fixed and a variable rate is one of the biggest decisions in a mortgage. Neither is always cheaper. The right one depends on how much payment change you can live with, and how long you plan to keep the mortgage.

The short version: a fixed rate gives you a predictable payment for the whole term. A variable rate moves with the lender's prime rate, which follows the Bank of Canada, and usually costs less to break.

How a fixed rate works

With a fixed rate, your interest rate stays the same for the whole term, usually five years, so your payment is predictable. Fixed rates tend to follow the yield on Government of Canada bonds, and lenders add a margin. A fixed rate can move even when the Bank of Canada does nothing, because bond yields move with the market.

How a variable rate works

With a variable rate, your rate moves with the lender's prime rate, which follows the Bank of Canada's policy rate. There are two common types:

• Adjustable-rate: your payment changes each time prime moves.
• Fixed-payment variable: your payment stays the same and only the split between interest and principal changes. When rates rise, less of each payment goes to principal. If rates rise enough, you can reach your trigger rate, where the payment no longer covers the interest, and the lender may ask you to raise your payment or make a lump-sum payment.

The penalty difference

Breaking a variable mortgage early usually costs three months of interest. Breaking a fixed mortgage can cost the greater of three months of interest and the interest rate differential (IRD), which can be far higher. If you might sell or refinance before the term ends, that difference matters. See our guide on mortgage penalties.

Example: $500,000 mortgage, 25-year amortization

Using the best insured five-year rates we found in October 2026, about 4.00% fixed and 3.40% variable:

• Fixed: about $2,630 a month, locked in for five years.
• Variable: about $2,476 a month today, roughly $154 less.
• If rates rose: a variable rate that climbs above the fixed rate would cost more than the fixed mortgage.
• If rates fell: the variable borrower would gain.

Other options

• Split (hybrid) mortgage: part fixed, part variable, to spread the risk.
• Shorter or longer terms: one-, three- and ten-year terms exist, and the best choice depends on your plans and the rate gap.
• Convertible mortgages: a variable that can be switched to fixed during the term, usually at the lender's current fixed rate for the remaining term.

How to decide

Ask yourself two questions. Could my budget absorb a payment 20% higher? Would a rate increase keep me awake? If either answer is yes, fixed is often the more comfortable choice. If you have room in your budget, expect to move or refinance, or value a lower penalty, variable can make sense.

The gap between the two changes all the time, so compare current offers, and ask each lender how it handles payments when prime changes.

Rates in the example are from October 2026 and will have changed.