What is the difference between fixed and variable mortgages?
A fixed mortgage keeps the contract rate unchanged during the selected term. A variable mortgage rate moves when the lender changes its prime rate. Depending on the variable product, the required payment may change, or the payment may stay level while the amount applied to principal changes.
| Decision factor | Fixed mortgage | Variable mortgage |
|---|---|---|
| Rate during the term | Contract rate stays fixed. | Rate changes with lender prime and the contract spread. |
| Payment planning | Usually easier to budget for the term. | Payment or amortization can be affected by rate changes, depending on the contract. |
| Prepayment penalty | The contract may use the greater of three months’ interest or an interest-rate-differential calculation. | Often based on three months’ interest, but the contract controls. |
| Main trade-off | More rate certainty, with less benefit if market rates fall. | Potential benefit if prime falls, with higher exposure if prime rises. |
When might a fixed mortgage fit?
A fixed mortgage may fit when payment certainty is the priority, the household budget has little room for higher interest costs, or predictable costs matter more than the possibility of benefiting from future rate decreases. Compare prepayment privileges and the lender’s penalty calculation before signing.
When might a variable mortgage fit?
A variable mortgage may fit when the borrower can absorb increases, understands whether payments adjust, values a contract’s prepayment flexibility and accepts rate uncertainty. A lower initial rate does not guarantee a lower total cost over the term.
Fixed or variable mortgage: five questions to ask
- Could the budget absorb a higher payment or slower principal repayment?
- Is a sale, refinance or move likely before the term ends? Compare each lender’s penalty language, not only the advertised rate.
- How is a variable payment handled? Ask whether the payment changes with prime and what happens near a trigger rate.
- What prepayment options are included? Review lump-sum and payment-increase privileges.
- What is the comparable total cost? Model more than one rate scenario using the same mortgage amount, amortization and payment frequency.
How the Bank of Canada affects each option
The Bank of Canada’s policy interest rate influences lender prime rates, so policy changes can flow through to variable mortgage rates. Fixed mortgage pricing is not set directly by the policy rate and can move for other funding-market reasons. No rate forecast is certain; compare affordability under both stable and higher-rate scenarios.
Sources reviewed September 8, 2026: Bank of Canada policy interest rate and the Financial Consumer Agency of Canada mortgage guide.
Compare current rate types without mixing page intent
This guide owns the fixed-versus-variable decision question. For current single-value public benchmarks and eligibility conditions, use the dedicated Ontario 5-year fixed rate guide or Ontario variable mortgage rate guide. Use the Ontario mortgage calculator to compare payment scenarios.
Bottom line
Choose the contract whose risk, flexibility and penalty terms fit the borrower’s actual plans—not a prediction about where rates will go. Rates and approval depend on the borrower, property, lender, product and timing. OAC; rates can change without notice.
Compare fixed and variable options
Request a personalized comparison using the same mortgage amount, amortization and payment frequency.
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