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Summary: A fixed-rate mortgage locks your interest rate for the term, so your payments never change, while a variable rate moves with your lender's prime rate, usually starting lower but able to rise or fall. Fixed suits tight budgets and people who want certainty; variable suits those comfortable with risk who may move or refinance early, since its penalty to break is typically just three months' interest.
Choosing between a fixed and variable mortgage rate is one of the bigger decisions in financing a home, and there is no single right answer: it depends on your budget, your risk tolerance, and your plans. Here is how the two compare and how to think about which fits you.
What is the difference between a fixed and variable rate mortgage?
A fixed-rate mortgage sets your interest rate for the whole term (in Canada, terms typically run one to five years), so your rate and payments stay the same no matter what the Bank of Canada does. A variable-rate mortgage moves with your lender's prime rate, so it usually starts lower than a comparable fixed rate but can rise or fall over the term. The practical differences:
Fixed rate | Variable rate | |
Interest rate | Locked for the term | Moves with the lender's prime rate |
Starting rate | Usually higher | Usually lower |
Payment predictability | Fully predictable | Can change as rates move |
Penalty to break early | Often large (interest rate differential) | Typically about three months' interest |
Best suited to | Tight budgets, people who want certainty | Risk-tolerant buyers who may move or refinance |
What are the pros and cons of a fixed-rate mortgage?
A fixed rate buys certainty: you know exactly what every payment will be for the term. People choose it for:
Peace of mind. Helpful if you keep a tight budget or simply want consistency.
No rate-watching. A Bank of Canada increase does not change your payment.
Protection from rising rates. Market increases during your term are not your problem.
The trade-offs:
A higher starting rate. That certainty usually costs slightly more than a variable rate at the outset.
Larger penalties to break early. Breaking a fixed mortgage often triggers an interest-rate-differential penalty that can run into the thousands, which matters if you might move or refinance before the term ends.
What are the pros and cons of a variable-rate mortgage?
A variable rate trades certainty for a lower starting cost and more flexibility. People choose it for:
A lower starting rate. Variable rates typically start below comparable fixed rates.
A track record. Historically, variable rates have cost borrowers less more often than not; a widely cited York University study put the figure near 90% over a long historical period, though the advantage narrows when rates rise sharply, as they did in recent years.
Flexibility. If you need to break the mortgage, the penalty is typically only about three months' interest, and many lenders let you convert to a fixed rate later.
The trade-offs:
Uncertainty. If rate swings would keep you up at night, this may not be for you.
Higher payments if rates rise. On a tight budget, an increase can sting.
Which mortgage rate should you choose?
There is no universal right answer; it comes down to your finances and temperament. As one of our lawyers, Ariana Serapiglia, puts it:
When deciding between fixed and variable rate mortgages, you should consider your financial circumstances and lifestyle to determine what would work best for you. Fixed rates offer more predictability, as your mortgage payments and interest rate will not fluctuate over the term. Variable interest rates, however, offer more flexibility, as initial interest rates are typically lower than fixed rates and there is often an option to convert the mortgage to a fixed rate.
In short: if you crave stability and work with a tighter budget, lean fixed. If you are comfortable with risk, may move or refinance, and think rates could fall, variable may fit. Either way, run the numbers with a mortgage professional, and see our guide on how to find the best mortgage rate before you commit.
Frequently asked questions
What is the difference between a fixed and variable mortgage rate?
A fixed rate is locked for the term, so payments never change. A variable rate moves with your lender's prime rate, usually starting lower but able to rise or fall over the term.
Is a fixed or variable mortgage cheaper?
Variable rates usually start lower and have historically cost less more often than not over long periods, but that is not guaranteed: in a rising-rate environment a variable rate can end up costing more than a fixed one.
What are the penalties for breaking each type of mortgage?
Breaking a fixed mortgage often triggers an interest-rate-differential penalty that can reach the thousands. Breaking a variable mortgage is typically just about three months' interest, which is one of its main advantages.
Can I switch from a variable to a fixed rate?
Often, yes. Many lenders let you convert a variable-rate mortgage to a fixed rate during the term, though the fixed rate you would convert to depends on rates at that time.
Which is better when interest rates are high?
It depends on where rates are headed. A fixed rate locks in certainty if you expect rates to stay high or climb; a variable rate can pay off if you expect rates to fall, but it carries the risk they rise instead.
About the author
Emily Holland is a content writer at Ownright who writes about the financial and legal sides of buying a home, working with the firm's lawyers to keep the guidance accurate and clear.
At Ownright, we focus entirely on Ontario residential real estate law, and once you have chosen your mortgage we handle the legal side of your closing from start to finish. You can start your closing online or get in touch with any questions.
Important note: This article is general information, not legal or financial advice. No one should act, or refrain from acting, based solely on the information in this post or any linked materials without first seeking appropriate professional advice.