Fixed or Variable? How to Choose a Mortgage Rate in Canada

Choosing between a fixed and a variable rate is one of the biggest decisions in any mortgage, and the right answer depends as much on you as on the market. Here is how each one works in Canada, what each can cost if you break it early, and the questions worth asking before you choose.

The short version

How a fixed rate works

With a fixed rate, your interest rate is locked in for your term, so your payment stays the same until you renew. That makes budgeting simple, and it protects you if rates rise during the term. The trade-off is that you don't benefit if rates fall, and the penalty to break a fixed mortgage early can be larger.

Your term is how long your contract and rate last, and it can run from a few months to five years or more. Your amortization is how long it would take to pay off the whole mortgage. Most Canadian mortgage holders have a term of five years or less, and five-year fixed mortgages make up about 40% of all mortgages in Canada, according to a 2025 Bank of Canada analysis.

How a variable rate works

A variable rate is usually set as your lender's prime rate plus or minus a set amount. Each lender sets its own prime rate, but the big banks move theirs in step with the Bank of Canada's policy rate, which is announced eight times a year. When the Bank of Canada held its rate on September 2, 2026, its policy rate was 2.25%, and the big banks' prime rate was 4.45%.

There are two kinds of variable-rate mortgage:

• Variable rate with adjustable payments. Your payment changes whenever the rate changes.
• Variable rate with fixed payments. Your payment stays the same, but if rates rise, more of each payment goes to interest and less to your principal.

With fixed payments, it is important to understand your trigger rate: the interest rate at which your payment only covers interest. Beyond it, unpaid interest can be added to your balance. Your contract also sets a trigger point, and if you reach it, you may have to increase your payments or make a lump-sum prepayment. The Financial Consumer Agency of Canada (FCAC) warns that this type of mortgage may be riskier than you expect.

What it costs to break your mortgage

If you break a closed mortgage before the end of your term, for example to sell, refinance or switch lenders, you usually pay a prepayment penalty. FCAC says the penalty will usually be the higher of three months' interest or the interest rate differential (IRD). At many lenders, breaking a closed variable mortgage costs three months' interest, while breaking a fixed one costs the higher of the two. The IRD can be far larger than three months' interest, so ask your lender exactly how it calculates the penalty before you sign.

If there is a real chance you will sell during your term, this difference matters. A portable mortgage can also help if you buy again, and I explain porting in Buying and Selling at the Same Time.

Converting and prepaying

• Converting to fixed. Many variable mortgages let you convert to a fixed rate during your term. You may have to pay a fee, conditions may apply, and the fixed rate you get will be the one offered at that time, which may be higher than your variable rate.
• Prepayment privileges. Closed mortgages usually limit how much extra you can pay each year, either as a lump sum up to a set amount or percentage of the original mortgage, or by increasing your payments. You typically can't carry unused room forward to the next year.
• Open mortgages. These let you pay off any amount without a penalty, but they typically come with higher rates.

The stress test applies either way

When you take out a new mortgage, whichever rate you choose, you must qualify at the higher of 5.25% or your contract rate plus 2%, for both insured and uninsured mortgages. I explain how lenders work out what you can borrow in How Much House Can You Afford?

Questions to ask yourself

• How would a higher payment, or a slower paydown, affect your budget?
• Could you sell, move or refinance before the end of your term?
• Do you value a predictable payment more than the chance of paying less?
• Do you plan to make extra payments, and how much flexibility do you need?

No rate type is always cheaper. A fixed rate buys certainty. A variable rate can cost less if rates fall or hold steady, but it leaves you exposed if they rise. A mortgage professional can compare current offers for your situation.

Questions buyers often ask me

What is the difference between a fixed and a variable mortgage rate?

A fixed rate stays the same for your whole term. A variable rate moves with your lender's prime rate, which usually follows the Bank of Canada's policy rate.

What is a trigger rate?

On a variable-rate mortgage with fixed payments, the trigger rate is the interest rate at which your payment only covers interest. Beyond it, unpaid interest can be added to your balance.

Is it cheaper to break a variable or a fixed mortgage?

Often a variable one. Many lenders charge three months' interest to break a closed variable mortgage, while breaking a fixed one usually costs the higher of three months' interest or the interest rate differential, which can be much more.

Can I switch from a variable to a fixed rate?

Many lenders let you convert during your term, sometimes for a fee, at the fixed rate offered at that time.

Do I have to pass the stress test with a variable rate?

Yes. You qualify at the higher of 5.25% or your contract rate plus 2%, whether your rate is fixed or variable.

Before you shop, get pre-approved, try my mortgage calculator, and read what interest rates mean for buyers in Greater Vancouver and the Fraser Valley.

This article is general information, not financial advice. Rates mentioned were current at the time of writing. For FCAC's guide, see choosing a mortgage.