Fixed vs. Variable Mortgage Rate: How to Choose in 2026

A fixed rate locks in the same payment for the whole term; a variable rate follows the Bank of Canada’s policy rate and can go up or down. Fixed suits you if you want a predictable budget; variable can cost less, but only if you can absorb increases. The right choice depends mostly on your financial cushion and how likely you are to sell or refinance before the term ends.

Fixed rate: stability

With a fixed rate, your rate and payment stay the same for the entire term, often 5 years. Even if rates climb, your payment doesn’t change.

Pros

• Predictable budget, ideal for first-time buyers or tight budgets.
• Protection against rate increases.

Cons

• Usually a slightly higher starting rate than variable.
• Prepayment penalty that can be steep if you sell or refinance before the term ends.

Variable rate: flexibility

A variable rate equals the lender’s prime rate plus or minus a spread (for example, “prime minus 0.50%”). Prime follows the Bank of Canada’s policy rate, which is reviewed 8 times a year.

There are two types

• Adjustable payment: your payment changes every time the rate changes.
• Fixed payment: your payment stays the same, but less of it goes to principal when rates rise. If rates rise a lot, the lender may require a higher payment.

Pros

• Often a lower starting rate.
• Penalty limited to 3 months’ interest if you break the mortgage.
• Most lenders let you convert to a fixed rate during the term.

Cons

• Payments or total cost can increase.
• Requires room in your budget to absorb increases.

Worked example

Take a $400,000 mortgage amortized over 25 years, with illustrative rates:

In this example, variable saves about $110 a month at first. A 1% increase makes it about $110 a month more than fixed. The question to ask: could you comfortably afford the increase scenario?

For your own numbers, use our fixed vs. variable comparator.

The penalty: the often-forgotten factor

If you sell, refinance or pay off your mortgage before the term ends, you pay a penalty.

• Variable rate: usually 3 months’ interest. On $400,000 at 4%, about $4,000.
• Fixed rate: the greater of 3 months’ interest or the interest rate differential (IRD). The IRD can reach $10,000 to $20,000 when rates have dropped since you signed, especially with the big banks.

If you might move, separate, upsize or refinance in the next 2 or 3 years, this difference alone can tip the balance toward variable or a shorter term.

How to choose: 5 questions to ask yourself

1. Would a $200 monthly increase strain your budget? If so, fixed is safer.
2. Do you expect to sell or refinance within 5 years? If so, look at variable or a shorter fixed term.
3. Do you have an emergency fund? It makes variable more comfortable.
4. Do you sleep better with a guaranteed payment? Peace of mind has real value.
5. How big is today’s gap between fixed and variable? The smaller it is, the more attractive fixed becomes.

What about a hybrid rate?

Some lenders offer a half-fixed, half-variable mortgage. It spreads the risk, but makes switching lenders at renewal more complicated.

Frequently asked questions

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