It's one of the most common questions Canadian homebuyers and renewers face: should I go fixed or variable? The honest answer is — it depends. But we can make that decision a lot clearer.
A fixed-rate mortgage locks your interest rate for the entire term — typically 1 to 5 years in Canada. Whatever prime rate does during that time, your payment stays the same. This makes budgeting simple and removes uncertainty.
The tradeoff: fixed rates are usually priced higher than variable rates to compensate for the certainty they provide. And if you need to break the mortgage early, penalties are based on the Interest Rate Differential (IRD) — which can run into tens of thousands of dollars.
A variable-rate mortgage fluctuates with the Bank of Canada's overnight rate via your lender's prime rate. When the BoC cuts rates, your rate drops. When it raises, your rate rises.
There are two types of variable mortgages in Canada:
Break penalties on variable mortgages are typically just 3 months' interest — significantly cheaper than fixed IRD penalties.
Research by Dr. Moshe Milevsky found that variable rates outperformed fixed rates roughly 88% of the time over a 25-year period in Canada. But that analysis predated the 2022 rate-hike cycle — which saw variable mortgage holders absorb dramatic payment increases in a short period.
History favours variable — but history doesn't guarantee the next 5 years.
| Factor | Lean Fixed | Lean Variable |
|---|---|---|
| Budget flexibility | Tight budget | Room to absorb increases |
| Rate outlook | Rates rising | Rates holding or dropping |
| Likelihood of breaking early | Low | High (lower penalties) |
| Stress tolerance | Prefer certainty | Comfortable with uncertainty |
| Term length | 5-year term | Shorter term |
A middle-ground option many Canadians overlook: a 1- or 2-year fixed rate. You get payment certainty in the short term while retaining flexibility to switch at renewal — often when rates have shifted in your favour.
Too many Canadians sign whatever their existing bank sends at renewal. The renewal offer from your bank is almost never their best rate. Shopping your renewal — even 2–3 lenders — can save thousands over a 5-year term.
Fixed = certainty. Variable = flexibility and historical advantage. Neither is universally better — the right answer depends on your income stability, budget, and outlook on rates.
What's almost always wrong: signing a renewal without shopping around, or making the fixed/variable choice without running real numbers on your situation.