Fixed vs Variable Mortgage Rate: Which Is Better in Canada?

It's one of the first big decisions every Canadian borrower faces: fixed or variable? A fixed rate locks in certainty; a variable rate moves with the market and can cost less — or more — over your term. There's no universally "right" answer, only the right answer for your budget and your tolerance for surprises. This guide explains how each works, what really separates them, and how to choose with confidence.

Key takeaways

• A fixed rate stays the same for your entire term; a variable rate moves with your lender's prime rate, which tracks the Bank of Canada policy rate.
• Fixed offers predictable payments and peace of mind; variable historically costs less but carries the risk of rising payments.
• Breaking a fixed mortgage early can trigger a large penalty (interest rate differential); variable penalties are usually much smaller.
• Whatever you choose, you must still pass the stress test at the greater of your contract rate + 2% or 5.25%.
• HOMEH gives eligible buyers the industry's highest Cashback Rebate, easing the cost of homeownership whichever rate you pick.

How each rate type works

A fixed-rate mortgage locks your interest rate for the full term — most commonly five years. Your payment never changes, no matter what happens in the wider economy. You trade the chance of savings for the certainty of knowing your exact payment for years.

A variable-rate mortgage is tied to your lender's prime rate, which moves up and down with the Bank of Canada's policy rate. When the central bank cuts rates, more of your payment goes to principal; when it raises them, more goes to interest. Some variable mortgages keep your payment steady while shifting the principal/interest split; others adjust the payment itself.

The core trade-off

The decision comes down to certainty versus potential savings. Here's how the two stack up across the factors that matter most:

What drives variable rates?

Variable rates follow your lender's prime rate, which moves in step with the Bank of Canada's policy rate decisions. No one can reliably predict those moves — which is exactly why the choice is about your comfort with uncertainty.

Penalties: the hidden difference

If you break your mortgage before the term ends — to sell, refinance or move — the penalty can differ dramatically between the two. Variable mortgages usually charge about three months' interest. Fixed mortgages often use the interest rate differential (IRD), which can run into many thousands of dollars depending on rates and time remaining.

If there's any chance you'll need to break early, that penalty gap belongs in your decision. Learn more in our guide to mortgage penalties, and if you're weighing a change mid-term, see should I refinance my mortgage.

Who each option suits

Neither choice is inherently smarter — it depends on your finances and temperament.

• Fixed may suit you if you're on a tight budget, value predictable payments, or would lose sleep over rate swings.
• Variable may suit you if you have financial buffer to absorb payment increases, believe rates may fall, or want flexibility with smaller breakage penalties.
• Either way, build in a cushion — and remember the stress test means you've already qualified at a higher rate than you're paying.

The stress test applies to both

Regardless of rate type, a federally regulated lender will qualify you at the greater of your contract rate plus 2% or 5.25%. That built-in buffer is one reason variable borrowers usually have room to handle increases. See how the stress test works.

Run your own numbers

The best way to decide is to model both scenarios against your real budget. Compare payments side by side with the loan comparison calculator, and brush up on the fundamentals in how mortgages work in Canada before you commit.

The industry's highest Cashback Rebate with HOMEH

Whichever rate you choose, HOMEH puts money back in your pocket. Eligible buyers get the industry's highest Cashback Rebate — estimate yours and compare scenarios with the loan comparison calculator. Sellers list for 1%, or free when they also buy with HOMEH within 6 months, or $395 + HST with a Mere Posting.