Mortgages: Should you get a fixed or variable mortgage in Canada?

Fixed rate mortgages

When your mortgage rate stays the same for the duration of the payment, it’s called a fixed rate mortgage. Let’s say you have a 20-year fixed rate mortgage; your rate will be fixed for the entire term. Many call this “locking in” your rate.

Terms can be long or short, the most common being five years. For example, if your mortgage has a fixed rate of 3%, you will pay annual interest at 3% for the full five years, even if Canadian interest rates rise or fall during that time. You will be able to renegotiate the mortgage for a different term and you will have the option of choosing a fixed or variable mortgage. This cycle will continue until your mortgage is paid in full.

Fixed rate mortgages are perfect for new homeowners who need to know their mortgage payments for years to come, as their income stays the same for years before increasing. It’s also very convenient for people because you can budget more efficiently.

Variable rate mortgage

When your rate changes during the term of the loan, it is called a variable rate mortgage. If, for example, you have a 10-year variable rate mortgage, your rate can change at any time during the term of the mortgage.

These changes usually occur when the Bank of Canada adjusts its interest rates. The variable rate is based on the lender’s prime rate, which is only offered to customers with good credit and payment history.

A variable rate mortgage offers you the advantage of being able to convert from a lower interest rate to a fixed rate mortgage at any time.

Variable rate loans generally have a lower interest rate than fixed rate mortgages. This is because a variable rate is more risky. Even though there is a higher risk, you have the opportunity to pay off your loan faster.

Fixed payments with a variable rate

If the interest rate goes up, the payments that pay the interest will be higher and the payments that pay the principal will be lower.

If the interest rate decreases, the payments to repay the principal will be higher. This will give you the opportunity to pay off your mortgage faster.

Your lender may increase your payments if market interest rates reach a specific trigger point or percentage. The increased payment allows you to pay off your mortgage before the end of the amortization period. You can find the trigger point in your contract.

Pros and cons of fixed and variable mortgage rates

There are pros and cons to consider for both a variable rate mortgage and a fixed rate mortgage.

Fixed mortgage rates

Benefits

• You can easily set a good budget and know that payments will remain consistent.
• You never have to worry about interest rates going up during the life of the loan.

Disadvantages

• You may not save money if interest rates drop for the term of the loan.
• There is a penalty fee if you break the contract in the middle of the loan term.

Variable mortgage rates

Benefits

• Variable rate mortgages are known to have outperformed fixed rates.
• You will have more flexibility and can lock in an interest rate at any time.

Disadvantages

• Because rates fluctuate, you may pay more when interest rates rise.
• Fluctuating interest rates make it difficult to budget your money.

How do I choose between a fixed and a variable mortgage?

Mortgage interest rates have been historically very low. Therefore, you can benefit from low interest rates with a fixed mortgage rate over the long term. However, if you’re looking to refinance or sell your home, a variable rate may allow you to get lower rates and make you more affordable in the short term.

In this situation, it is detrimental to determine how long you intend to have a mortgage. The rate adjustment could cause you to lock in a higher rate than you originally planned with a fixed rate. With long-term debt such as a mortgage, the slight difference between two interest rates can add up to thousands of dollars over 30 years.

Moving mid-term: penalties and porting

If you expect to sell before your term ends, how the penalty is calculated matters as much as the rate gap. As of September 2026, the Financial Consumer Agency of Canada (FCAC) says that on a closed mortgage, the penalty is usually the higher of two amounts: 3 months' interest on what you still owe, or the interest rate differential (IRD).

• Closed fixed rate: the higher of 3 months' interest or the IRD. The IRD mostly applies when your rate is higher than the lender's current rate. In the FCAC example (5-year term, 36 months left), the IRD reaches $12,000, compared with $3,000 for 3 months' interest.
• Closed variable rate: at several major banks, including RBC, the penalty is limited to 3 months' interest on the amount prepaid.
• Porting your mortgage: if you buy another home, some lenders let you transfer your balance, rate and terms to the new property, which saves you from breaking your contract. If the new home costs less than your mortgage balance, you may still pay a penalty.

Porting rules vary by lender and by rate type, including whether you can borrow more when you move. Before you sign or renew, ask your lender how it calculates the penalty and whether your mortgage can be ported with an increase in the amount.

How to protect yourself from rising interest rates?

Your payments will increase if interest rates rise. Make sure you can adjust your budget if your mortgage payments increase. Ask your lender if they can offer you the following services:

• A convertibility feature – You can change or convert your mortgage at any time during the term to a fixed interest rate.
• An interest rate cap – This is the maximum interest rate that can be charged by your lender on a mortgage. Although interest rates are increasing, you do not pay more than the maximum interest limit.

If you select a convertibility feature and move your mortgage rate to a fixed rate, here’s what happens:

• In general, you must pay a tax
• Special conditions may apply
• Your new fixed interest rate may be higher than the variable interest rate you have been paying.

Bottom Line

If a lender is offering low rates for a fixed rate mortgage, it will be wise not to choose a variable rate mortgage. However, if you plan to sell your home soon, you may be penalized if you terminate your contract early.

On the other hand, choosing a variable rate mortgage gives you the ability to set an interest rate at any time during the term of your contract.

Whichever route you choose, make sure you’ve done your research and think about your plans and whether you can afford fluctuating interest rates. A good place to start to find the best mortgage rate, whether fixed or variable, is nesto: