Key takeaways
- A fixed rate stays the same for the term; a variable rate moves with the lender's prime rate.
- Nobody can reliably predict rates. Choose based on your budget and risk comfort.
- Penalties for breaking a mortgage can differ a lot between fixed and variable.
- Compare the whole product, not just the rate.
This is one of the most common mortgage questions. The honest answer is that neither is always better.
How a fixed rate works
Your interest rate is set for the whole term (often 1 to 5 years). Your payment doesn't change, which makes budgeting simple. Fixed rates tend to follow bond market yields rather than the lender's prime rate.
How a variable rate works
Your rate is tied to the lender's prime rate and can move during your term. Depending on the product, either your payment changes when the rate does, or your payment stays the same while the share going to interest and principal shifts. Ask which type you're being offered.
Key differences
| Fixed | Variable | |
|---|---|---|
| Rate during term | Stays the same | Can change |
| Predictability | High | Lower |
| Typical penalty to break | Greater of 3 months' interest or an interest rate differential (IRD) | Typically 3 months' interest |
| Good if you... | Value certainty and a fixed budget | Can tolerate payment changes, may want flexibility |
Penalty formulas vary by lender, so check your contract. Our guide to mortgage penalties shows the maths.
Questions to ask yourself
- If my payment rose noticeably, could I handle it comfortably?
- Do I expect to sell, refinance or move within the term?
- How much would a penalty cost me under each option?
- Do I value certainty more than the possibility of savings?
The Bank of Canada's rate decisions and the prime rate give general context, but they don't tell you what will happen over your term. You can see the latest benchmarks on our rates page.
Other features matter too
Prepayment privileges, portability, whether you can blend and extend, and the lender's reputation can matter as much as the rate. Compare the full picture.
This article is general information, not personalized mortgage, legal, tax or financial advice. Rules, rates and eligibility change and depend on your circumstances and lender criteria. Confirm details before you make decisions.
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