Neither a fixed nor a variable mortgage is always cheaper. A fixed rate keeps the interest rate unchanged for the mortgage term, making payments predictable. A variable rate can move up or down; its initial rate is often lower than a similar fixed offer, but your cost and, in some contracts, your payment can change. The right choice depends on your budget’s ability to absorb higher rates, how long you expect to keep the mortgage, and the contract’s prepayment and break-charge rules.
Compare written offers on identical mortgage amounts, terms, amortizations and payment frequencies. Record the payment, principal repaid, balance at renewal, fees, prepayment privileges, portability and a lender-specific penalty estimate—not just the advertised rate. Rates and discounts change regularly, so obtain dated quotes before deciding.
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Fixed and variable mortgages at a glance
| Feature | Fixed-rate mortgage | Variable-rate mortgage |
|---|---|---|
| Interest rate during the term | Unchanged for the entire term. | Can rise or fall during the term, usually as the lender’s variable rate changes. |
| Payment behaviour | Normally stays the same for the selected payment frequency. | May be adjustable (payment changes) or fixed-payment (payment initially stays level while the interest/principal split changes). |
| Budget certainty | High certainty about scheduled payment and principal paid by term-end. | Less certainty; affordability must be tested against higher rates and contract trigger provisions. |
| Initial pricing | Often higher than a comparable variable offer, but this is not guaranteed for any particular date or lender. | Often lower than a similar-term fixed offer, but the difference and future direction are unpredictable. |
| Main risk | Missing a later rate decrease and potentially facing a large charge if you break the contract early. | Higher interest costs or payments if rates rise; with fixed payments, principal reduction can slow or stop. |
| Best comparison focus | Payment certainty, total term cost, remaining balance and break-charge formula. | Rate and payment scenarios, trigger rate, principal reduction, flexibility and break-charge estimate. |
Financial Consumer Agency of Canada (FCAC) describes the trade-off plainly: “The rise and fall of interest rates are difficult to predict.” (FCAC, Interest on mortgages) Treat a forecast as a scenario, not as a promise.
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Term is not amortization
The mortgage term is the length of your current contract—such as two, three or five years. At the end, you renew, refinance, transfer or pay off the balance. The amortization is the schedule used to calculate repayment, often 25 years or another period. It can extend across several terms. A longer amortization lowers the scheduled payment but increases total interest in FCAC’s examples. Hold amortization constant when comparing offers; otherwise, a lower payment may simply reflect slower repayment. See FCAC’s explanation of mortgage terms and amortization.
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Fixed rate
With a fixed mortgage, the interest rate does not change during the agreed term. That makes the scheduled payment and the amount of principal expected to be repaid easier to plan. The rate is fixed only for that term, not for the entire amortization; you face a new rate and contract choices at renewal.
Variable rate
A variable mortgage’s rate can change during the term. “Variable” describes the rate, not necessarily the payment. Read the payment clause and the lender’s trigger-rate language before comparing it with a fixed offer.
Hybrid or combination mortgage
A combination mortgage divides the balance into fixed and variable portions. It gives partial protection if rates rise and retains some benefit if rates fall. The portions can have different terms, prepayment rules and break charges, and the structure may make a transfer to another lender more difficult. Ask for the calculations for each portion and for the mortgage as a whole. FCAC discusses this type of choice in its mortgage selection guidance.
How payments work when the rate changes
Variable rate with adjustable payments
The scheduled payment changes when the rate changes. The contract generally establishes the payment needed to amortize the balance under the new rate, while the interest portion moves with the rate. A rate increase therefore raises the required payment; a decrease can lower it. Confirm how frequently the lender recalculates and whether there is a minimum payment.
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Variable rate with fixed payments
The scheduled payment initially remains level. When the rate changes, more or less of that payment is allocated to interest, leaving the opposite amount for principal. If the rate rises far enough, the payment may cover little or no principal. A contract can specify a trigger rate or another point at which the lender increases the payment, requires a lump sum or applies a different remedy. Not every mortgage reaches a trigger, and the threshold is contract-specific.
If your statement shows that principal is no longer declining, or your lender says you are near a trigger, contact the lender promptly and request written options. Possible responses can include a higher payment, a lump-sum prepayment, a term change or refinancing; the available choices and costs depend on your agreement and qualification.
Why payment structure matters more than the word “variable”
Two variable offers with the same rate can produce different cash-flow risk if one has adjustable payments and the other has fixed payments. A March 2026 Bank of Canada staff paper studies these three structures: fixed-rate fixed-payment, variable-rate variable-payment and a hybrid variable-rate fixed-payment contract in which rate changes affect principal repayment rather than payment size (Bank of Canada Staff Working Paper 2026-2). The paper is staff research, not a guarantee about any lender’s product.
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Use the following process for a purchase, renewal or refinance. Ask each lender or broker to complete the same fields in writing.
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- Fix the comparison inputs. Use the same mortgage amount, term, amortization, payment frequency and assumed closing or renewal date. State whether the mortgage is insured or uninsured and whether it is owner-occupied, because eligibility and pricing can differ.
- Record the dated rate and discount. Write down the annual rate, the lender’s reference or prime rate if applicable, the discount or premium, the quote date, the rate-hold expiry and conditions. Posted rates are advertised rates and may change regularly; a discounted rate is below the posted rate. Ask whether the discount is guaranteed for the entire term. See FCAC’s mortgage-choice guidance.
- Capture the payment mechanics. Record the payment amount, frequency, first payment date and what causes a payment change. For a variable fixed-payment offer, record the trigger rate, trigger-payment formula and any required lump sum. For an adjustable-payment offer, record the reset frequency and notice process.
- Calculate the term-end position. Request total scheduled payments and interest during the term, estimated principal paid and the remaining balance at renewal. Keep assumptions visible; an estimate based on an unchanged variable rate is not a forecast.
- List every flexibility feature. Compare annual lump-sum and payment-increase privileges, payment frequency changes, portability, transfer rules, refinancing restrictions and whether unused privileges expire.
- Obtain a break-charge estimate. Ask the lender for a current, customized charge if you sell, refinance, transfer or pay off the mortgage on a specified date. Request the calculation method and the assumptions used, not just a verbal amount.
- Stress-test the household budget. Have the lender model rate increases and decreases and show both the payment and principal reduction. Test the higher payment against income changes, childcare, repairs, property taxes and other debts.
- Read the final disclosure. Check the principal, annual rate, term, payment amount and frequency, amortization, prepayment conditions, penalties and other charges against the signed offer.
Comparison worksheet
| Item | Offer A | Offer B |
|---|---|---|
| Mortgage amount and purpose | Enter the same amount and purpose | Enter the same amount and purpose |
| Term and quote date | Record term, date and rate-hold expiry | Record term, date and rate-hold expiry |
| Amortization and payment frequency | Record both | Record both |
| Rate and how it is determined | Fixed rate or variable reference plus discount/premium | Fixed rate or variable reference plus discount/premium |
| Initial scheduled payment | Record amount and first due date | Record amount and first due date |
| Payment-change rule | Usually unchanged during term; verify contract | Adjustable, fixed-payment trigger or other rule |
| Term interest and total payments | Request lender calculation | Request lender calculation under stated scenarios |
| Principal paid and balance at term-end | Request lender calculation | Request lender calculation under stated scenarios |
| Prepayment privileges | Annual lump sum, payment increase and conditions | Annual lump sum, payment increase and conditions |
| Portability and transfer | Written conditions | Written conditions |
| Break-charge estimate | Date-specific written estimate and formula | Date-specific written estimate and formula |
| Other fees or restrictions | List each charge | List each charge |
Use payment examples correctly
FCAC illustrates the effect of a one-percentage-point rate difference with a $300,000 mortgage and a 25-year amortization: the monthly payment is $1,587.06 at 4.0% and $1,744.81 at 5.0%. These are educational illustrations, not current market offers or a quote for your mortgage (FCAC payment table). The difference is $157.75 per month before considering taxes, insurance, fees or any change in amortization.
For your own comparison, use the exact balance, payment frequency and compounding convention in the lender’s disclosure. A payment calculator can show the arithmetic, but only the contract tells you how a variable reset, trigger rate, prepayment or penalty is handled.
Decide how much rate risk your budget can carry
Fixed may fit a tight or highly committed budget
- Your income is stable but the monthly surplus is small, so a higher payment would force cuts or new borrowing.
- You need a predictable payment for a fixed-term household plan.
- You expect to remain in the home and keep the mortgage through most or all of the term.
- You value certainty about the principal expected to be repaid by renewal more than the possibility of benefiting from a rate decrease.
Do not treat fixed as risk-free. If you sell, refinance or transfer early, the lender’s contract-specific break charge can be substantial, and a fixed borrower does not automatically receive a lower charge than a variable borrower.
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Variable may fit a resilient budget and flexible plans
- You have enough monthly cash flow or savings to absorb a meaningful payment increase.
- You understand whether payments adjust and how the contract responds near a trigger rate.
- You may benefit if rates fall and accept that the opposite can happen.
- You expect to use prepayments or move before term-end and the written penalty and portability terms are favourable.
A lower starting rate is not a guaranteed saving. Compare the term-end balance and total cost under several rate paths rather than assuming today’s spread persists.
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When a hybrid deserves consideration
A split mortgage can reduce exposure to a sudden increase while retaining variable-rate exposure on the other portion. It adds administrative complexity: ask whether both portions must be renewed together, whether one can be transferred, and how prepayment privileges and penalties apply to each.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Early repayment, refinancing and portability costs
A prepayment charge may apply when you pay more than the contract permits, break the mortgage, transfer to another lender before the term ends or pay off the balance after selling. FCAC states, “The amount of your penalty depends on the type of mortgage you have.” The exact amount also depends on the agreement, timing and lender calculation; there is no single formula that applies to every Canadian mortgage (FCAC, Mortgage prepayment: know your rights; FCAC, Mortgage fees: prepayment penalties).
Before signing, ask these questions in writing:
- How much can I prepay each year, and can I increase the regular payment?
- Does an unused privilege carry forward?
- Can I port the mortgage to another property, and what are the timing and qualification rules?
- Can I transfer it to another lender without breaking it?
- How is the charge calculated for this specific fixed or variable product?
- What would the charge be if I paid out on a stated date, and how long is that estimate valid?
Federally regulated lenders must disclose key mortgage information, including the principal, annual rate, term, payment amount and frequency, amortization where it differs from the term, prepayment conditions, penalties and other charges. Variable-rate disclosure includes the initial rate, how it is determined and the calculation date. Check the final disclosure against the offer (FCAC, Getting a mortgage: know your rights; Financial Consumer Protection Framework Regulations).
Renewal risk is part of today’s decision
Your current rate may be comfortable while the renewal rate is not. A July 2025 Bank of Canada staff analytical note projected that about 60% of mortgage holders renewing in 2025 and 2026 would likely see payments rise from their December 2024 levels. That was a forecast based on the information available in July 2025, not an observed result for all renewals in 2026 (Bank of Canada Staff Analytical Note 2025-21).
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For a new mortgage, include a renewal-rate stress test in your budget. For an existing borrower, start reviewing options before the renewal date, obtain competing written offers and include any transfer fee, appraisal, legal cost or penalty in the comparison. A lower renewal rate is not necessarily better if it comes with a longer amortization, restrictive privileges or a costly exit.
Common comparison mistakes
- Comparing unlike terms. A two-year fixed quote and a five-year variable quote do not expose you to the same renewal date or break risk.
- Holding amortization constant incorrectly. A lower payment from a longer amortization is not evidence of a lower borrowing cost.
- Assuming variable means adjustable payment. Verify whether the payment changes or the principal component changes.
- Using a posted rate as your actual price. Ask for the written discounted offer and its conditions.
- Forecasting a single rate path. Model increases, decreases and an unchanged-rate case instead.
- Ignoring the term-end balance. Two offers can have similar payments but leave different principal balances.
- Waiting to investigate a trigger rate. If principal is no longer falling, contact the lender immediately rather than waiting for a formal notice.
- Assuming a penalty is portable or negotiable. Read the contract and obtain a date-specific estimate.
- Treating historical ranges as predictions. FCAC notes that rates varied from 0.5% to 4.75% between 2005 and 2015; that historical context is not a current range or forecast (FCAC, Interest on mortgages).
A practical decision checklist
Choose only after you can answer all of these questions from the written offer:
- What are the term, amortization, mortgage amount and payment frequency?
- Is the rate fixed, variable-adjustable-payment, variable-fixed-payment or hybrid?
- What exact event changes the rate or payment, and how much notice will I receive?
- What payment would the lender require after plausible rate increases?
- Does the mortgage continue reducing principal under those scenarios?
- What will I owe at term-end under each scenario?
- What are the annual prepayment privileges and their restrictions?
- Can I port or transfer, and what qualification or timing rules apply?
- What is the lender’s written break-charge estimate on the date I care about?
- Are the quote, discount and rate hold still valid when I expect to close or renew?
The strongest offer is the one whose payment and contract you can live with across plausible rate outcomes—not automatically the one with the lowest advertised rate.
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