Choosing between fixed vs variable mortgage rates can affect your monthly budget and the total interest paid over the mortgage term.
The better option depends on how much payment certainty you want and how comfortably you could handle changes in interest rates.
What Are Fixed and Variable Mortgage Rates?
A fixed mortgage rate stays the same throughout the mortgage term. A variable mortgage rate can change during the term as interest rates move.
The difference affects how your payments and interest costs respond to changes in the Canadian interest-rate environment.
Fixed vs Variable Mortgage Rates: Main Differences
| Feature | Fixed rate | Variable rate |
|---|---|---|
| Rate during the term | Stays the same | Can change |
| Payment predictability | Higher | Lower |
| Benefit from falling rates | Usually no | Potentially yes |
| Impact from rising rates | Limited during the term | Potentially significant |
| Budget planning | Easier | Requires more flexibility |
Fixed rates are generally higher than variable rates when borrowing begins, although actual offers depend on the lender and mortgage terms.
How Does a Fixed Mortgage Work?
With a fixed-rate mortgage, your interest rate remains unchanged for the duration of the term.
This can make budgeting easier because you know the rate that will apply during that period.
A fixed rate may be appealing if you:
- prefer predictable payments;
- have little room for higher housing costs;
- want protection from rising rates;
- value stability over the possibility of lower payments.
The downside is that you generally won’t benefit from falling market rates until you have an opportunity to renew or otherwise change your mortgage.
How Does a Variable Mortgage Work?
A variable mortgage rate can change during the term.
If rates fall, your borrowing costs may decrease. If rates rise, the opposite can happen.
The effect on your payment depends on the type of variable mortgage. Some have adjustable payments, while others keep payments fixed and change how much goes toward interest and principal.
A variable rate may make more sense if you have enough room in your budget to handle potential increases.
Which Option Can Cost Less?
There is no guaranteed answer.
A variable mortgage can be cheaper if rates remain below the comparable fixed rate or decline during the term. A fixed mortgage can prove less costly if variable rates rise enough to outweigh the difference in starting rates.
For example, suppose a lender offers:
- Fixed rate: 5.0%
- Variable rate: 4.5%
The variable option starts at a lower rate. But if its rate rises significantly, the initial advantage could disappear.
The comparison should therefore consider the possible path of rates, not just the rate offered on the day you sign.
What Is Happening With Canadian Interest Rates?
As of August 19, 2026, the Bank of Canada’s target for the overnight rate was 2.25%, unchanged since July 15.
This rate is not the same as a mortgage rate. Lenders determine their own mortgage pricing, while the Bank of Canada’s policy rate influences broader borrowing conditions and can affect variable-rate mortgages through changes in lenders’ prime rates.
Because mortgage offers can change independently, borrowers should compare current lender quotes rather than assume that the policy rate directly determines their mortgage rate.
What Happens If Rates Rise?
A fixed mortgage protects you from changes to the contracted interest rate during the term.
With a variable mortgage, higher rates can increase your interest costs. Depending on the mortgage structure, your payment may increase or a larger share of the existing payment may go toward interest.
For a variable mortgage with fixed payments, sufficiently high rates can even result in none of the payment going toward principal, depending on the contract.
What Happens If Rates Fall?
Variable-rate borrowers can benefit when interest rates decline.
Depending on the mortgage structure, the payment may decrease or a greater portion of the existing payment may go toward reducing the principal.
A fixed-rate borrower generally won’t see the contracted rate change during the term. The opportunity to obtain a different rate usually comes when the mortgage is renewed or changed under the terms of the contract.
How Does the Mortgage Term Affect the Decision?
The mortgage term is the length of your current contract. It is different from the amortization period, which is the overall time it would take to pay off the mortgage if the scheduled payments continued as planned.
For example, you could have:
- a 5-year mortgage term;
- a 25-year amortization period.
At the end of the five-year term, you generally need to renew if you still have a balance.
This means your rate decision should consider both the current term and what may happen when it ends.
What Should You Compare Before Choosing?
Don’t focus only on the advertised interest rate.
Check:
- monthly payment;
- mortgage term;
- amortization period;
- fixed or variable structure;
- prepayment privileges;
- penalties for breaking the mortgage;
- lender fees;
- total interest costs.
A mortgage with a slightly higher rate could still suit you better if its conditions provide greater flexibility or reduce other costs.
Who May Prefer a Fixed Rate?
A fixed rate can be a better fit if you value predictability.
It may be particularly useful when:
- your budget is tight;
- you want stable payments;
- rising rates would create financial stress;
- you plan to stay with the mortgage for the full term.
The main trade-off is giving up the potential benefit of lower rates during the term.
Who May Prefer a Variable Rate?
A variable rate may be worth considering if you have more financial flexibility and can absorb an increase in borrowing costs.
It can be more attractive when:
- you have room in your monthly budget;
- you are comfortable with uncertainty;
- you want exposure to potential rate decreases;
- the variable rate is meaningfully below the comparable fixed option.
You should not choose a variable rate solely because its starting rate is lower.
What Is a Hybrid Mortgage?
A hybrid, or combination, mortgage combines fixed and variable portions in the same mortgage.
This structure can provide some protection against rate increases while leaving part of the mortgage exposed to changes in variable rates.
However, the additional structure can make the mortgage more complicated, particularly if you later want to transfer it to another lender.
How Can You Estimate the Difference?
A simple comparison can help illustrate the potential impact.
Imagine a $400,000 mortgage with the same amortization and payment schedule:
| Scenario | Interest rate | Effect |
|---|---|---|
| Fixed | 5.0% | Rate remains unchanged during the term |
| Variable | 4.5% initially | Rate can move during the term |
The variable option starts at a lower rate, but that does not guarantee a lower total cost. If its rate rises enough, the savings can disappear.
The actual cost depends on the mortgage balance, payment frequency, amortization, rate changes and lender terms.
Fixed vs Variable Mortgage Rates: Which Should You Choose?
The better option depends on your financial situation rather than a universal rule.
Choose fixed if payment certainty is a priority and a rate increase would be difficult to absorb.
Consider variable if you have financial flexibility and are comfortable with the possibility of higher payments in exchange for potential savings if rates fall.
Before deciding, compare the complete mortgage offers and consider how each option would fit your budget under different rate scenarios.
Frequently Asked Questions
Is a fixed mortgage rate always higher than a variable rate?
Not necessarily over the entire mortgage term. Fixed rates are generally higher than comparable variable rates when the mortgage is taken out, but future rate changes can alter the overall cost.
Can a variable mortgage rate go down?
Yes. A variable rate can decrease when the factors affecting the mortgage rate move lower.
What happens when a fixed mortgage term ends?
If you still owe money, you generally need to renew your mortgage. The rate and terms available at that point may differ from your previous contract.
What is the biggest risk of a variable mortgage?
The main concern is that rising interest rates can increase borrowing costs and, depending on the mortgage structure, reduce how much of each payment goes toward the principal.
Can I change my mortgage before the term ends?
You may be able to refinance, transfer or break the mortgage, but penalties or other costs can apply. Check the specific conditions in your mortgage contract.
Is a shorter mortgage term always better?
No. A shorter term may offer different rates and give you an earlier opportunity to renew, but it also means you may face new rates sooner. The right term depends on your plans and financial situation.