A variable rate is usually lower than a fixed rate on the day you sign. Whether that saving is worth it depends on how far rates might rise during your term, whether you could afford the payments if they did, and how likely you are to break the mortgage early. This guide sets out how each rate works, the risks on each side and the trade-offs that decide the choice. It’s one of the rate-type guides in the mortgage types and features hub.
Fixed vs variable: quick comparison
| Feature | Fixed rate | Variable rate |
|---|---|---|
| Interest rate | Locked for the full term | Moves with the lender’s prime rate |
| Payment | Stays the same for the term | Changes with prime, or stays the same while the principal share changes |
| Starting rate | Usually higher | Usually lower |
| Cost if rates rise | None during the term | You pay more interest |
| Cost if rates fall | No benefit until renewal | Interest cost falls right away |
| Penalty to break | Often large (see the penalty difference below) | Usually smaller |
| Risk at renewal | The rate on offer may be higher | The rate on offer may be higher |
How fixed-rate mortgages work
A fixed-rate mortgage locks your interest rate for the term. If you sign a five-year fixed at 4.19%, you pay 4.19% for all five years whatever happens to the Bank of Canada’s rate.
Fixed rates follow the bond market rather than the Bank of Canada’s policy rate. Lenders price five-year fixed mortgages off the Government of Canada five-year bond yield plus a spread, adjusted for your credit and down payment, so fixed rates rise and fall with investors’ expectations for inflation and interest rates; see how bond yields affect mortgage rates.
What you get: a mortgage payment that stays the same for the whole term, protection if rates rise and nothing to monitor.
What it costs: a starting rate that is usually higher than variable, no benefit if rates fall during the term, and a penalty to break that can be large when rates have dropped since you signed, because the interest rate differential grows as rates fall. The mortgage penalty calculator estimates it for your mortgage.
How variable-rate mortgages work
A variable rate is priced as a discount from (or premium over) your lender’s prime rate. If prime is 4.45% and your rate is prime minus 0.80%, you pay 3.65%. When the Bank of Canada changes its policy rate, banks move prime, and your rate moves with it.
Lenders handle a rate change in one of two ways. With an adjustable payment, your payment is recalculated so the mortgage still pays off on schedule. With a fixed payment, the payment stays the same and the split between interest and principal shifts instead; a large enough rise can leave the payment covering only interest, the trigger rate, after which the balance can grow (negative amortization). How the two behave side by side is covered in adjustable-rate vs variable-rate mortgages.
What you get: a usually lower starting rate, a lower interest cost as soon as rates fall, and a penalty to break that is usually only three months’ interest.
What it costs: payments (or principal repayment) that can change at any rate announcement, and the risk that rates rise faster than your budget can absorb, as they did in 2022 and 2023.
The two kinds of risk
| Risk | Variable rate | Fixed rate |
|---|---|---|
| Payment certainty | No: payments may rise, or the amortization stretches if the payment is fixed | Yes, for the term |
| Interest cost | The rate could rise above what a fixed rate would have cost | None during the term |
| Getting out early | Cheap: usually three months’ interest | Can be expensive: the interest rate differential can make refinancing or selling costly |
| Renewal | The rate on offer could be high | The rate on offer could be high |
What history shows
A widely cited study by Moshe Milevsky of York University, covering 1950 to 2000, found that a borrower who chose variable paid less interest than one who chose fixed in most of the periods it studied. The pattern behind that result:
- When the Bank of Canada is cutting, variable rates save the most, because the rate falls during the term.
- When it is raising, fixed rates protect you. From early 2022 to July 2023 the Bank of Canada raised its policy rate from 0.25% to 5.00%, one of the fastest increases on record, and many variable-rate borrowers who had signed at very low rates saw much higher payments or reached their trigger rates.
- Over a full term, a variable rate that starts lower has historically made up for the stretches when rates rose, but not in every period.
Past results don’t predict the next term. A variable rate is a bet you can afford to lose only if your budget could carry the payment at a much higher rate.
The spread is what matters most
The gap between the fixed and variable rates you’re offered on the day you sign sets how much rates would need to rise before variable ends up costing more.
| Spread (fixed minus variable) | What it means for the trade-off |
|---|---|
| Under about 0.30 points | Variable saves little; a small rise would erase it |
| About 0.50 to 0.75 points | A moderate head start for variable |
| 1.00 point or more | A large head start; rates would have to rise substantially for fixed to win |
| Variable higher than fixed | Variable costs more from day one and still carries the rate risk |
On a $600,000 mortgage, one percentage point of interest is about $6,000 a year, so the spread is a real amount, not a rounding difference. Current fixed and variable rates are on the mortgage rates page.
How a rate change moves the payment
Monthly payments on a 25-year amortization at 4.00% and 4.25%, compounded semi-annually:
| Mortgage amount | Payment at 4.00% | Payment at 4.25% | Monthly difference |
|---|---|---|---|
| $300,000 | $1,578 | $1,619 | $41 |
| $400,000 | $2,104 | $2,159 | $55 |
| $500,000 | $2,630 | $2,698 | $68 |
| $600,000 | $3,156 | $3,238 | $82 |
| $700,000 | $3,682 | $3,778 | $96 |
Over a five-year term, a rate half a point lower on a $500,000 mortgage (4.00% instead of 4.50%) saves about $11,900 in interest.
The mortgage calculator runs the same comparison for your own numbers.
The penalty difference
The cost of breaking the mortgage is the most overlooked part of the decision, and many borrowers do break before the term ends: a move, a separation, a larger home or a refinance to reach equity. Breaking a closed mortgage, paying it off early or prepaying more than your privileges allow usually costs the higher of 3 months' interest and the interest rate differential (IRD) on a fixed rate, and typically 3 months' interest on a variable rate; your mortgage contract sets the exact method and comparison rate, and a federally regulated lender must tell you how it calculates the penalty.
| Situation | Variable rate | Fixed rate |
|---|---|---|
| Selling mid-term | Usually three months’ interest | The interest rate differential can be several times larger, especially if rates have fallen |
| Refinancing to a lower rate | Usually affordable | The interest rate differential often wipes out the saving |
| Separation or another life change | The same modest penalty | A large penalty can complicate the settlement |
How each method is calculated is in how mortgage penalties are calculated. Some variable mortgages also let you lock into a fixed rate mid-term instead of breaking; see convertible mortgages.
Weighing the choice
These are the circumstances in which each option has tended to fit, not a recommendation.
Fixed tends to suit borrowers who:
- are buying near the top of what they qualify for, with little room for a higher payment;
- live on a fixed income, such as a pension or disability benefits;
- are first-time buyers already stretched by the move;
- would find rate uncertainty stressful enough that a steady payment is worth paying for;
- face a narrow spread, where variable saves little.
Variable tends to suit borrowers who:
- have income well above their payments, or savings to absorb an increase of a few hundred dollars a month;
- may sell or refinance before the term ends, where the smaller penalty matters;
- can follow rate announcements and adjust their budget;
- face a wide spread, where variable starts well ahead.
A shorter fixed term is a middle ground: some payment certainty, a sooner chance to reprice and usually a smaller penalty than a five-year fixed. The trade-offs are in 3-year vs 5-year terms.
Other things that apply to both
Renewal. At the end of the term you can move between fixed and variable without a penalty; the mortgage renewal guide covers what to compare.
Extra payments. Both rate types usually allow lump sums and payment increases within your prepayment privileges, whichever you choose.
The stress test. Lenders check that you could afford the payments at the greater of your contract rate plus 2% or 5.25%, a floor set by OSFI for uninsured mortgages and by the federal government's mortgage insurance rules (the Minister of Finance's Eligible Mortgage Loan Regulations) for insured ones. It applies whichever rate type you pick; see the mortgage stress test.
Related calculators and guides
- Mortgage affordability calculator: how much home you can afford
- Mortgage renewal calculator: plan an upcoming renewal
- Mortgage refinance calculator: the cost and saving of refinancing
- Interest rate forecast: where forecasters expect rates to go
- How mortgage rates are determined: what drives fixed and variable rates
- Types of mortgages in Canada: every mortgage type in one overview
Sources
The figures and rules on this page come from these sources, last checked against them between September 29, 2026 and October 2, 2026. How we check facts.
- Bank of Canada: Conventional 5-year mortgage rate (data series)
- Bank of Canada: Conventional 5-year mortgage rate (data series)
- Bank of Canada: Conventional 5-year mortgage rate (data series)
- Bank of Canada: Data table
- CMHC: CMHC Purchase
- Financial Consumer Agency of Canada: Breaking your mortgage contract
- Financial Consumer Agency of Canada: Mortgage fees: Prepayment penalties
- Justice Laws (Canada): Eligible Mortgage Loan Regulations
- OSFI: OSFI exempts uninsured mortgage straight switches from the prescribed MQR andβ¦
- OSFI: Amendments to the minimum qualifying rate for uninsured mortgages
- RBC: Variable Rate Mortgage | RBC Royal Bank of Canada