Choosing between a fixed and a variable rate is one of the biggest decisions you’ll make with any mortgage. A fixed rate gives you certainty. A variable rate usually starts lower but moves with the Bank of Canada. Neither is always better; the right choice depends on the spread between them, your budget, and how much uncertainty you can live with.
As of September 2026, the Bank of Canada’s policy rate is 2.25% and big-bank prime is 4.45%. Variable rates around prime minus 0.50% sit meaningfully below typical five-year fixed rates. Here’s how to think it through.
Rates as of September 2026. Your rate will depend on your profile and lender.
How each option works
Fixed vs. variable at a glance
Fixed rate
- Rate stays the same for the whole term
- Payment is predictable
- Penalty to break is often an IRD, which can be large
- Priced off government bond yields
Variable rate
- Rate moves with your lender’s prime rate
- Usually starts lower than fixed
- Penalty to break is usually three months’ interest
- Moves when the Bank of Canada changes its rate
Variable mortgages come in two styles. With an adjustable-rate mortgage, your payment changes whenever prime changes. With a fixed-payment variable mortgage, the payment stays the same and the split between interest and principal shifts instead. If rates rise enough, you can hit a “trigger rate” where the payment no longer covers the interest, and the lender will ask you to increase payments.
Comparing five years of interest
To make the trade-off concrete, here is a $500,000 mortgage over a 25-year amortization, comparing an illustrative 4.59% five-year fixed rate with a 3.95% variable rate under three possible rate paths.
Illustrative rate paths over a 5-year term
Total interest over 5 years on $500,000
This is the key idea: with a meaningful spread, a variable rate has a head start. Rates have to rise by roughly the size of the spread, and fairly early in the term, before fixed comes out ahead. That doesn’t mean variable is always right; it means you should know how much room you have.
Questions to help you decide
Five questions
How big is the spread?
The wider the gap between fixed and variable, the more cushion variable gives you.
Could you handle a higher payment?
Stress-test your budget: could you comfortably pay 1% or 2% more?
How long will you keep the mortgage?
If you may sell or refinance before the term ends, variable’s smaller penalty is valuable.
How do you feel about uncertainty?
If rate headlines would keep you up at night, the certainty of fixed has real value.
What term makes sense?
Three-year fixed terms can be a middle ground, with less commitment than five years.
Which fits your situation?
| Situation | Often leans toward |
|---|---|
| Tight budget, little room for payment increases | Fixed |
| Strong cash flow and a savings cushion | Variable |
| May sell or refinance within a few years | Variable (smaller penalty) |
| First-time buyer who values predictability | Fixed |
| Want flexibility to convert later | Variable with a conversion option |
Examples use illustrative rates and Canadian semi-annual compounding, and are rounded. They are not rate quotes or advice. Last reviewed September 2026.