Fixed vs Variable Mortgage: Which Should You Choose?

A fixed mortgage keeps your payment steady for the term, while a variable mortgage moves with the lender prime rate.

By Promissory.ca Editorial Team Reviewed against official Canadian sources Last updated: 2026-09-16

Two clocks in every mortgage

Every mortgage runs on two timelines. The amortization is the full period over which the balance would be paid down if you made every scheduled payment, commonly up to 25 years for an insured loan. The term is the shorter period, often a few years, during which your rate and conditions are set. When the term ends you renew, and that is when your rate is reset. The rate type you pick, fixed or variable, decides how much certainty you buy and what you pay for it.

Neither choice is automatically cheaper. Each one shifts risk between you and the lender. The right fit depends on your budget, your timeline and how you would handle a change in your payment.

How a fixed-rate mortgage works

With a fixed rate, the interest rate is set for the whole term. Your payment is fixed at the start and stays the same until the term ends. If market rates climb, your payment does not move. If they fall, your payment does not move either, so you do not benefit unless you refinance, which can carry a penalty.

Fixed rates are often a little higher than variable rates at the outset because the lender carries the risk of future rate changes. You are paying for predictability. That predictability matters most when your budget has little room or when you simply want to know the exact number every month.

How a variable-rate mortgage works

A variable rate is tied to the lender prime rate, which moves with the policy rate set by the Bank of Canada. Your rate is quoted as prime plus or minus a spread. When prime changes, your interest cost changes with it.

Variable mortgages come in two common styles. An adjustable-rate mortgage changes your payment when the rate changes, so the loan keeps its original amortization. A fixed-payment variable mortgage keeps the payment the same but changes how each payment splits between interest and principal. If rates rise, more of your payment covers interest and less reduces the balance, which can stretch your amortization and leave you paying longer. That detail is set out in your mortgage documents and deserves a close read before you sign.

Fixed vs variable at a glance

What the stress test means for both

Federally regulated lenders must qualify you using a minimum qualifying rate, which is the greater of your contract rate plus two percentage points or 5.25%, under OSFI Guideline B-20. The rule applies to fixed and variable mortgages alike, so it does not tilt the choice between them at the application stage. It does mean you must show you could still carry the mortgage if rates were higher than the rate you are offered. The stress test is a buffer against payment shock, not a forecast of where rates will go.

Payment shock and your comfort zone

Payment shock is the jolt you feel when a payment rises faster than your income. A variable rate exposes you to that risk directly, because the interest cost moves with prime. A fixed rate removes it for the length of the term, but you give up the chance to pay less if rates drop.

A useful test is to ask what a modest increase in your payment would do to your budget. If the answer is that you would need to cut essentials or borrow to keep up, a fixed rate buys peace of mind that may be worth the extra cost. If you have room in your budget, a stable income and a longer horizon, a variable rate may let you pay less while rates are flat or falling.

Term, amortization and penalties

The rate type is not the only lever. A shorter term means you renegotiate sooner, which is useful if you expect rates to fall but risky if they rise. A longer amortization lowers the payment but increases the total interest paid over the life of the loan.

Breaking a mortgage early is where the two rate types diverge sharply. Variable-rate mortgages often carry a simpler penalty, while fixed-rate mortgages can carry a larger charge based on the difference between your rate and current rates for the time left in the term. If there is any chance you will sell, refinance or pay the mortgage off early, ask how the penalty is calculated before you choose. The Interest Act provides that where a mortgage sets out interest but does not state an annual rate, interest cannot be charged at more than 5% per annum, which is one reason a well drafted mortgage states the rate clearly.

Which one fits your situation

Lean toward a fixed rate if your budget is tight, if you are near the limit of what you can carry, if you value certainty above all, or if you would lose sleep over a rising payment. Lean toward a variable rate if you can absorb a higher payment, if you have an emergency fund, if your income is stable and growing, and if you are comfortable following interest rate news.

Some borrowers split the difference with a hybrid or combination mortgage that puts part of the balance in a fixed rate and part in a variable rate. That can balance certainty and flexibility, though it adds complexity to how you compare offers.

Questions to ask before you sign

1. Is the rate fixed or variable, and what reference rate does the variable rate track?
2. If it is variable, does my payment change or does my amortization change when rates move?
3. How is the early repayment penalty calculated, and does it differ by rate type?
4. Can I convert from variable to fixed during the term, and at what cost?
5. What are my prepayment privileges, and how much extra can I pay each year?
6. What happens at renewal if I do nothing?

Comparing mortgage offers means comparing more than the headline rate. The rate type, the term, the penalty rules and the prepayment terms all shape the real cost. Promissory.ca is not a lender or a mortgage broker and charges consumers no fee; it may receive compensation from lending partners. A licensed mortgage professional can walk you through the options that fit your situation.