Whether you’re buying or renewing, the fixed-or-variable decision comes down to three questions: how much payment change can your budget absorb, how likely are you to break the mortgage early, and what is the gap between the two rates today?
How each works
Fixed: the rate is set for the term. Your payment and the interest you pay are known in advance.
Variable: the rate is the lender’s prime rate plus or minus a spread, and prime moves with the Bank of Canada’s policy rate. There are two kinds:
- Adjustable-rate (ARM): the payment changes whenever prime changes.
- Variable with static payments (VRM): the payment stays the same, but the share going to interest changes. If rates rise far enough you can hit a “trigger rate”, where the payment no longer covers the interest.
Penalties: the overlooked difference
Breaking a variable mortgage usually costs three months’ interest. Breaking a fixed mortgage can cost the much larger interest rate differential. If there’s a real chance you’ll sell or refinance within five years, that difference can matter more than the rate itself.
Who each suits
| Choose fixed if… | Choose variable if… |
|---|---|
| Your budget has little room for a higher payment | You can absorb payment increases |
| You plan to stay put for the whole term | You may sell or refinance early |
| You value certainty over a possible saving | The variable rate is meaningfully below fixed |
Consider a shorter fixed term
A 2- or 3-year fixed is a middle ground: certainty now, a sooner chance to reprice, and a shorter IRD window. Use the renewal calculator to compare payments at different rates.