Fixed vs Variable Mortgage — Which Should You Choose?

According to the Bank of Canada's latest data (week of August 25, 2026), the typical 5-year fixed rate on new insured mortgages is 4.24% and the typical 5-year variable rate is 3.70%, so variable is about 0.54 points below fixed. The Bank of Canada's policy rate is 2.50% and prime is 4.70%. Which is better for you depends less on today's gap than on how much payment movement you can handle, whether you might break the mortgage early, and how long you plan to stay. Variable has been cheaper in 73% of weeks since 2014, but not in every period — it was more expensive than fixed from late 2022 to late 2025.

A fixed rate locks your interest rate for the entire mortgage term (typically 5 years). Your payment stays identical every month regardless of what happens in the broader economy. A variable rate fluctuates with the Bank of Canada’s prime rate. When the BoC raises or lowers its overnight rate, your lender’s prime rate adjusts accordingly, and your interest cost changes. The key distinction in Canada is that variable rate mortgages (VRMs) keep your payment amount the same but adjust the interest-vs-principal split, while adjustable rate mortgages (ARMs) actually change your payment amount.

If the Bank of Canada raises its overnight rate, your lender’s prime rate increases and so does your variable mortgage rate. With a variable rate mortgage (VRM), your payment stays the same but more of it goes toward interest and less toward principal — meaning you pay off your mortgage more slowly. With an adjustable rate mortgage (ARM), your payment actually increases. In extreme cases, a VRM can hit its trigger rate, where your entire payment covers only interest with nothing going to principal. At that point, most lenders require you to increase your payment or make a lump sum.

Yes. Most Canadian lenders allow you to convert from a variable rate to a fixed rate during your term, usually without penalty. The catch is that you will get the lender’s posted fixed rate at the time of conversion, not the discounted rate you might get if you were shopping around. This conversion option is one of the biggest advantages of choosing variable — it gives you an escape route if rates spike. Going the other direction (fixed to variable) typically requires breaking your mortgage entirely and paying the penalty, which can be substantial.

A trigger rate is specific to variable rate mortgages (VRMs) where your payment stays fixed but the interest-vs-principal split adjusts. It is the interest rate at which your entire monthly payment covers only interest, with zero going toward principal repayment. If prime rate rises past your trigger rate, you are no longer paying down your mortgage at all. During the 2022–2023 rate hikes, many Canadian VRM holders hit their trigger rates for the first time. Lenders typically respond by increasing your payment amount or requiring a lump-sum payment. Trigger rates do not apply to adjustable rate mortgages (ARMs) because ARM payments increase automatically.

Variable rate mortgages are quoted as prime minus (or sometimes plus) a discount. With prime at 4.70% and the typical variable rate at 3.70%, the typical discount right now works out to about Prime − 1.00%. The discount is negotiated when your mortgage is approved and stays fixed for the whole term. What changes is prime itself, which moves when the Bank of Canada changes its policy rate — so your effective rate moves with it while your discount stays the same. The size of the discount depends on market conditions, your credit profile and the lender.

Most first-time buyers benefit from starting with a fixed rate. When you are new to homeownership, there are already enough financial unknowns — property taxes, maintenance, insurance, utilities. A fixed rate removes one more variable from the equation and makes budgeting simpler. That said, if you have a healthy financial cushion and can absorb a rate increase of 1–2%, variable can save you money over the term. The key question is: would a payment increase cause you financial stress? If yes, fixed. If no, variable is worth considering.

Breaking a variable rate mortgage typically costs three months' interest. On a $500,000 mortgage at 3.70%, that's roughly $4,625. Breaking a fixed rate mortgage is usually more expensive, because the penalty is the greater of three months' interest or the Interest Rate Differential (IRD), which compensates the lender for the gap between your contract rate and current rates over the rest of your term. On a large mortgage with years remaining, an IRD penalty can easily reach $15,000–$30,000. That flexibility is one of the main reasons people who might sell, refinance or break early lean toward variable.

A hybrid or combination mortgage splits your total mortgage into two portions: one at a fixed rate and one at a variable rate. For example, you might put 60% on a 5-year fixed and 40% on a 5-year variable. This gives you partial protection against rate increases while still benefiting from potential variable rate savings. It is a middle-ground option for borrowers who want some stability but do not want to miss out entirely if rates drop. Not all lenders offer hybrid mortgages, and the terms can vary. I can help you find lenders that provide this option if it interests you.

Variable rates change whenever the Bank of Canada adjusts its overnight lending rate, which it announces at 8 scheduled meetings per year (roughly every 6 weeks). The BoC can also make emergency inter-meeting adjustments, though this is rare. When the BoC changes its rate, Canadian lenders typically adjust their prime rate within days. Your variable mortgage rate then moves by the same amount. During stable periods, your rate might not change for months. During active adjustment cycles like 2022–2023, rates changed at nearly every meeting. Between meetings, your rate stays constant.