Fixed or variable mortgage: how do I decide?

In Canada, the most useful way to decide is to ask how long you want your payment to be certain. A fixed rate locks the rate for the whole term, so it suits you if predictability matters most. A variable rate can move during the term but is commonly cheaper to break, so it suits you if your budget can absorb changes or you might sell, move or refinance early.

The key differences between fixed and variable

Nobody can reliably predict where rates will go.

How long do you want certainty?

Your term is the length of your current contract, often a few years, after which you renew. Your amortization is the total time to pay the loan off, often 25 years.

With a fixed rate, the interest rate is set for the term. Your payment and the interest you pay are known in advance until renewal. If certainty for the next five years matters, a five-year fixed term gives you that. A shorter fixed term gives certainty for less time, but an earlier chance to renegotiate.

With a variable rate, the rate usually moves with the lender's prime rate, which tends to follow the Bank of Canada's policy rate. Some lenders adjust your payment when prime changes. Others keep the payment the same and change how much of it goes to interest versus principal. Either way, you accept that your costs can change during the term.

Questions to ask yourself before you choose

1. Could your budget handle a higher payment? If a rise would cause real strain, many borrowers find a fixed rate's certainty worth paying for.
2. Might you sell, move or refinance before the term ends? If so, the penalty matters (see below).
3. How would you feel watching rates move? Some people sleep better with a fixed rate, and that is a legitimate reason.
4. When do you next want a decision point? Your answer points to a term length as much as to fixed or variable.

The Bank of Canada's published series of posted five-year rates and prime show that fixed and variable rates have each been cheaper at different times. Past patterns do not predict the next term.

Why the penalty differs between fixed and variable

If you break a mortgage before the term ends, you usually pay a prepayment penalty. According to the Financial Consumer Agency of Canada (checked October 2026), the penalty is usually the higher of three months' interest or the interest rate differential (IRD), which compares your rate with the lender's current rate for the remaining term. For variable-rate mortgages, the penalty is commonly three months' interest. Your contract governs.

On fixed mortgages the IRD can be much larger than three months' interest, especially when rates have fallen since you signed and the lender bases the calculation on posted rates. If there is a real chance you will break early, compare penalty methods before you choose. You can estimate your penalty with the penalty estimator.

Does the stress test treat fixed and variable differently?

No. Whichever you choose, a federally regulated lender qualifies you at the greater of the contract rate plus 2 percentage points, or 5.25% (OSFI's minimum qualifying rate). Choosing variable does not let you skip the test.

What to do next

To test fixed and variable against your own numbers, try the fixed vs variable tool. The tool simulates different rate paths and shows the Bank of Canada's published rate history; results are estimates only, not an offer or advice. Or use our call-me-back form to talk the choice through.