Guide · Canada
Fixed vs Variable Mortgage Rates in Canada: Which Should You Choose in 2026?
Last updated 2026-07-12 · Published 2026-07-12
Compare fixed and variable mortgage rates in Canada—how each responds to Bank of Canada rate changes, prepayment penalties, and which suits different borrower profiles. Model both in our free calculator.
How fixed and variable rates actually work
A fixed-rate mortgage locks your interest rate for the term you choose—commonly one to five years in Canada—so your payment stays the same regardless of what the Bank of Canada does during that term. A variable-rate mortgage is priced off the lender's prime rate, which moves when the Bank of Canada changes its policy rate; your payment or your amortization can change as a result, depending on whether you hold an adjustable-payment or static-payment variable product.
It is important to distinguish the two variable structures: with an adjustable-rate product your monthly payment itself rises or falls with prime, while with a static-payment variable your payment stays level but the proportion going to interest versus principal shifts, potentially extending your effective amortization if rates rise significantly.
The core trade-off
Fixed rates offer certainty—useful for tight household budgets, first-time buyers, and anyone who finds rate volatility stressful. Variable rates have historically cost less over the long run in many rate cycles, but that history is not a guarantee, and the path of Bank of Canada policy over your term is not knowable in advance.
Discharge and prepayment penalties differ meaningfully too: breaking a fixed-rate mortgage early typically triggers the greater of three months' interest or an interest rate differential (IRD) calculation, which can be substantial. Breaking a variable-rate mortgage early usually costs three months' interest only, which is often—though not always—cheaper, making variable more flexible if you expect to move, sell, or refinance before your term ends.
Which borrower profile suits which product
Borrowers who are already near the edge of their qualifying ratios, who plan to stay in the home for the full term, or who simply want predictable budgeting tend to lean toward fixed rates. Borrowers with more income cushion, who value flexibility to break the mortgage without a large IRD penalty, or who are comfortable monitoring rate announcements may lean toward variable.
Remember that regardless of which you choose, you must qualify using the mortgage stress test at the higher of your contract rate plus 2% or the regulatory floor rate—so your maximum borrowing power is the same stress-tested figure either way, even though your actual monthly payment during the term will differ.
Worked example (illustrative numbers only)
On a $500,000 mortgage amortized over 25 years, a five-year fixed rate of roughly 4.9% and a variable rate of roughly 4.5% would produce different initial monthly payments, with the variable starting lower. If the Bank of Canada holds rates through the term, the variable borrower saves; if the policy rate rises meaningfully, the gap can close or reverse.
Run both rates through our Canada mortgage calculator with the same purchase price, down payment, and amortization to see the payment difference in dollars—then decide how much rate-movement risk you are comfortable carrying for that gap.
Don't forget renewal risk
Most Canadian mortgages renew every one to five years rather than being fixed for the full amortization like some other countries' products. Even a fixed-rate borrower faces rate risk at renewal—if rates are materially higher than your original contract rate when your term ends, your payment will jump regardless of which product you originally chose.
Shop your renewal rather than accepting your existing lender's first offer; renewal is one of the few moments in the mortgage lifecycle where you have real negotiating leverage.
Try the numbers yourself
Put your income, debts, rate, and term into our browser-only calculator for Canada. No signup required.
Go to calculator →Frequently asked questions
Can I switch from variable to fixed partway through my term?
Most lenders allow a one-way conversion from variable to a fixed rate at their current posted rates during your term, often without a full penalty, though terms vary by lender. Ask your lender or broker about conversion privileges before you sign.
Do variable rates always end up cheaper than fixed?
No. Historical data covering many rate cycles shows variable has often, but not always, cost less over a full term. Past patterns are not a forecast, and any given five-year window can go either way depending on central bank policy.
Does a lower variable rate mean I can borrow more?
No. Lenders qualify you using the stress-tested rate regardless of which product you choose, so your maximum approved loan amount is generally the same whether you ultimately pick fixed or variable.
Is this guide advice on which rate type to choose?
No. It explains the mechanics so you can have an informed conversation with a licensed mortgage broker, who can factor in your personal risk tolerance, timeline, and the lender-specific penalty terms that apply to your situation.
Educational content only—not mortgage, tax, or legal advice. Confirm any decision with a licensed professional in your jurisdiction.