Fixed vs Variable Mortgage Rates in Canada: How to Actually Choose
By Jordan Ellis · Published · Reviewed
Quick Answer
A fixed-rate Canadian mortgage locks your rate and payment for the term (usually 5 years); a variable rate floats with the Bank of Canada's overnight rate, so your payment or amortization can change at 8 BoC meetings per year. Historically variable has cost less most of the time, but fixed buys certainty — and breaking a fixed mortgage can trigger a large IRD penalty.
How each one works
Fixed rate: one rate, one payment, for the whole term — typically 5 years in Canada (anything from 6 months to 10 years exists). You know exactly what you’ll pay until renewal.
Variable rate: priced as prime minus a discount (e.g., prime − 0.9%). Prime follows the Bank of Canada’s overnight rate, which the BoC sets 8 times a year. When the BoC moves, your rate moves. Depending on your mortgage type, either your payment adjusts (ARM) or your amortization stretches while the payment stays fixed (VRM).
The honest history
Studies of Canadian mortgage data (notably Moshe Milevsky’s York University research) found variable rates beat 5-year fixed rates most of the time over long periods — borrowers paid a “certainty premium” for fixed. But the sample cuts both ways: between March 2022 and mid-2023 the BoC hiked 4.75 percentage points, and variable borrowers watched their interest costs explode. Variable wins on average; averages don’t pay your specific mortgage in a hiking cycle.
The penalty asymmetry nobody mentions at signing
Life happens — job transfers, divorces, better offers. Breaking a variable mortgage costs about 3 months’ interest (roughly $4,000–$5,000 on a $400,000 balance at 4–5%). Breaking a fixed mortgage costs the greater of that or the Interest Rate Differential, and big-bank IRD calculations are notoriously punitive — $10,000–$20,000+ penalties are common on mid-term breaks. If there’s any real chance you’ll move or restructure within the term, that asymmetry belongs in your decision. Our refinance guide covers the break-even math.
How to choose (the questions that matter)
- Could you absorb a 2% rate rise? If the answer is no, fixed is your answer — the stress test says you can, but your budget knows better.
- How long will you keep this mortgage? Under ~3 years of certainty favours variable (small penalties) or shorter fixed terms.
- Does uncertainty cost you sleep? A rate you don’t check is worth money. Seriously.
- Is the spread meaningful? When variable is 1%+ below fixed, history leans variable. When it’s near zero, you’re getting certainty almost free.
Run both rates through the mortgage calculator and compare the payment and 5-year interest — then decide with numbers, not vibes.
The bottom line
Fixed vs variable isn’t a bet on the Bank of Canada; it’s a choice about who holds the rate risk — you or the bank. Take variable when you can genuinely absorb the swings and value the flexibility; take fixed when certainty is what lets you own the home comfortably. Neither answer is wrong; the wrong move is choosing on a rate forecast.
Official sources
Rules and dollar limits change. Confirm current amounts with the official pages below before you act · Last reviewed .
- Mortgage prepayment penalties (Financial Consumer Agency of Canada)
- Policy interest rate (Bank of Canada)