Fixed vs variable mortgage: which to pick in Canada

By Canadian Rates editorial team · Last reviewed April 28, 2026

Variable rates usually start cheaper, but a fixed rate locks your payment for the full term. Use the tool below to model your specific numbers. Pick a term length, enter your mortgage amount and rates, then test what would happen if the variable rate moves.

If you expect the variable rate to stay flat or fall, variable wins quickly. If you expect it to rise by 1.5% or more and stay elevated for most of the term, the fixed may be cheaper in total interest despite the higher starting point. The break-even depends on how fast and how high the variable rises. Try the presets above to see common scenarios.

The rest of this guide explains how fixed and variable mortgages are priced, when each wins, and how most Canadians actually choose.

How fixed and variable rates differ

Fixed-rate mortgages are priced off Government of Canada bond yields, most commonly the 5-year GoC bond. When bond yields move, fixed mortgage rates follow within days. Your contract rate is locked for the term (typically five years) regardless of what the Bank of Canada does in between.

Variable-rate mortgages are priced off the lender’s prime rate, which moves in lockstep with the Bank of Canada’s overnight rate. A variable might be quoted as “prime minus 0.70%.” If prime is 5.45%, your rate is 4.75%. Every BoC rate decision flows through to your mortgage automatically.

Structurally, variable usually starts cheaper, but the rate can move during your term. Fixed costs a certainty premium up front but locks the payment for five years.

When fixed wins

Payment certainty has real dollar value for households living close to their monthly budget. If your mortgage payment is $2,800/month and a 2% rate increase would push that to $3,450, and you cannot absorb $650/month of additional expense without distress, fixed is the right product regardless of what the historical average says. Fixed buys you the ability to plan.

Rising-rate cycles are the obvious scenario where fixed wins on dollars as well as certainty. If rates rise 2% above your contract rate and stay there for most of the term, a fixed-rate holder who locked in before the cycle ends up with a lower effective rate than the variable holder who rode it up.

The certainty premium is quantifiable. If the 5-year fixed is 5.20% and the variable is 4.75%, you are paying roughly 0.45 percentage points annually for certainty. On a $500,000 mortgage, that is about $2,250 per year, or $11,250 over five years in extra interest, assuming rates never change. Whether the premium is worth it depends on your household’s cash-flow resilience, not on a market forecast.

Many borrowers reason “if I think rates will fall, I should go variable.” That forecast is already partially priced into the yield curve. The real question is whether the market’s expectation is too pessimistic (fixed wins) or too optimistic (variable wins).

When variable wins

Over the majority of rolling five-year windows in Canadian mortgage data going back to the 1970s, variable-rate borrowers have paid less total interest than fixed-rate borrowers. The margin varies, but research from Moshe Milevsky at York University and ongoing analysis by mortgage strategist Rob McLister has consistently found variable outperformance in roughly 70–75% of historical periods.

Three structural reasons:

1. Variable rates start lower. If prime minus 0.70% is 4.75% and the 5-year fixed is 5.20%, you start 0.45 percentage points ahead. The fixed has to justify that premium through the whole term.

2. The break penalty is much smaller. This catches people off guard. If you break a fixed mortgage mid-term (because you sell, refinance, or port and change your loan amount), the lender charges an Interest Rate Differential (IRD) penalty. In a falling-rate environment, the IRD on a fixed can be enormous: $15,000–$30,000 on a $500,000 balance is not unusual. Variable mortgages are capped at three months’ interest. At a 4.75% rate on $500,000, that is roughly $5,938. Life events that force a mid-term break (job moves, separations, family changes) are not rare, and the variable’s lower break cost is real optionality.

3. Rate cuts feed through directly. If the BoC cuts 100 basis points over the next two years, a variable borrower captures every cut on the next payment. A fixed borrower locked in before the cuts misses all of them until renewal.

The historical record includes some very painful periods. Variable-rate holders who signed in early 2022 watched their rate climb from roughly 1.95% to 7.20% within 18 months. Some hit their trigger rate, the point where the monthly payment no longer covers the interest, forcing a payment increase or lump-sum top-up. Anyone who models only the upside scenario is underweighting the tail. The break-even tool above is most useful when you stress it with rate-rise scenarios you would actually find unpleasant, not just the ones you expect.

How most Canadians actually choose

Roughly 75–80% of new Canadian mortgages are fixed-rate, and the 5-year fixed is by far the most common single product. The variable share rises during periods when the fixed-variable spread is wide (above 1.5%) and when the BoC has clearly signaled a cutting cycle, but fixed has been the default for most of the past two decades.

Why?

• Bank promotion and default anchoring. Banks post 5-year fixed rates prominently and train mortgage specialists to lead with them. Most first-time buyers never hear a compelling variable pitch.
• Behavioural framing. “Fixed” reads as safe; “variable” reads as risky. The IRD penalty on a fixed can be the bigger practical risk in some scenarios, but the perception is durable.
• Renewal-cycle alignment. Five years lines up with how most Canadians think about their housing horizon: buy, stay five years, reassess.
• Genuine risk aversion. Many households are, in fact, better served by certainty. The 75–80% fixed share probably reflects a real population preference, not just inertia.

For most readers, the call comes down to this. Run the break-even tool, and if the variable scenario you find plausible saves you meaningfully, take the variable. If the scenarios are close, or if a rate-rise scenario you can imagine would cause you real distress, take the fixed. The decision is partly a forecast and partly a self-assessment.

Common questions

Can I lock in mid-term from variable to fixed?

Yes. Most lenders allow you to convert your variable to a fixed rate at any point in the term, typically at the lender’s current rate for the remaining term or longer. There is usually no penalty, but you are converting to whatever fixed rates are at that moment, which, if rates have risen, may be higher than the original fixed option would have been. Ask your lender about conversion terms before signing.

What’s the typical broker discount on each product?

On a 5-year fixed, a competitive broker discount off a major bank’s posted rate is typically 1.50–2.50 percentage points, with the effective rate landing 0.10–0.30% below the bank’s advertised “special offer.” On a variable, a good broker typically secures prime minus 0.60% to prime minus 1.00%. These ranges shift with lender competition and promotions, so get at least two offers.

Does the stress test apply differently to fixed vs variable?

No. The federal stress test (OSFI B-20 guideline) requires qualification at the higher of your contract rate plus 2%, or 5.25%, regardless of product. So a variable at 4.75% stresses at 6.75%; a fixed at 5.20% stresses at 7.20%. The mechanical effect is that variable borrowers can sometimes qualify for slightly larger mortgages because the stress rate is lower. See the affordability guide for the full qualification math.

What is a trigger rate?

A trigger rate applies to certain variable-payment mortgages where the monthly payment is held constant even as rates rise. If rates rise enough that the payment no longer covers the accruing interest, the lender will demand a payment increase or lump-sum top-up. The 2022–2023 hiking cycle pushed thousands of Canadians into trigger-rate territory for the first time. If you sign a variable, ask the lender explicitly whether the payment adjusts automatically with rate changes (variable-rate, variable-payment) or stays fixed until a trigger event (variable-rate, static-payment). The two products carry meaningfully different cash-flow profiles in a rising-rate scenario.

Is a 3-year fixed a better compromise than 5-year fixed or variable?

Sometimes. In an inverted-yield-curve environment where 3-year rates sit below 5-year rates, the 3-year fixed offers a shorter commitment at a (sometimes) lower rate, with the option to reassess. The tradeoff is renewal risk in three years rather than five. The break-even tool applies equally; just model against a 3-year horizon instead of 5.