Fixed or Variable? How to Actually Decide

Every client asks it, and the honest answer is that nobody can predict rates. What you can do is choose the option that fits your budget, your timeline, and your tolerance for change. Here's how to think it through.

What each one actually means

Fixed rate. Your interest rate and payment are locked for the whole term, typically five years. Whatever happens to the Bank of Canada's policy rate, your payment doesn't move.

Variable rate. Your rate is tied to your lender's prime rate, which moves with the Bank of Canada. Most variable products keep your payment the same and change how much of it goes to interest versus principal. Some adjust the payment itself when prime changes.

The four questions that matter

1. How tight is your monthly budget?

If a payment increase of a few hundred dollars would genuinely strain you, fixed is the safer choice. Certainty has real value when your margin is thin.

2. How long will you realistically keep this mortgage?

Life changes. People sell, move for work, separate, or upsize more often than they expect. This is where variable rates have a hidden advantage: the penalty to break a variable mortgage is usually three months' interest. Breaking a fixed mortgage can trigger an interest rate differential (IRD) penalty that is many times larger, especially with the big banks.

3. What is the spread between the two right now?

When fixed and variable rates are close, the certainty of fixed is cheap insurance. When variable is meaningfully lower, you're being paid to take on the uncertainty. That spread changes constantly, so look at today's numbers, not last year's.

4. Can you convert?

Most variable mortgages let you lock into a fixed rate at any time without penalty. That flexibility is worth something, though the fixed rate you'd get is the lender's posted rate at that moment, not a promotional one.

A few myths worth clearing up

• "Variable is always cheaper over time." Historically that has often been true, but "often" is not "always," and the past few years reminded everyone of that.
• "Fixed means no risk." Fixed removes payment risk during the term, but it adds penalty risk if you need to break early.
• "I should wait for rates to drop before buying." Rates and prices tend to move in opposite directions. Buy when it fits your life and your budget, then manage the rate as part of the plan.

The middle path

Some clients split the difference with a shorter fixed term, such as two or three years, which gives certainty now and a chance to reset sooner. Others choose variable and set their payment as if it were fixed, so any extra goes to principal and they've already stress-tested their own budget.

The right answer comes from your numbers. A short call is usually enough to run both scenarios side by side.

This article is general information, not personalized advice. Reviewed September 2026.