HFE Home Finance Expert

Fixed vs Variable Mortgage (Canada)

Quick primer on fixed and variable, with a live snapshot of typical bank rates. Use the calculators to estimate your payment or check stress-test affordability.

Rates: loading…
Best 5-yr Fixed: …
Best 5-yr Variable: …
Bank5-Year Fixed

Discounted special rates (20% down, 25-yr amortization). Actual offers vary.

Bank5-Year Variable

Discounted special rates (20% down, 25-yr amortization). Actual offers vary.

Fixed — how it works, when it fits, what to watch

How it works

Your rate and payment stay the same for the term (e.g., 5 years). Lenders price 5-year fixed from 5-year Government of Canada bond yields plus a spread.

Good fit if you…

  • Want payment certainty for budgeting
  • Prefer to avoid surprises if rates rise
  • Plan to hold the mortgage for most of the term

Watch-outs

  • Breaking early can trigger IRD penalties (can be higher than variable)
  • Less upside if rates fall after you lock
Variable — how it works, when it fits, what to watch

How it works

Quoted as a discount/premium to prime (e.g., Prime − 0.60%). Prime typically moves with the Bank of Canada overnight rate.

Good fit if you…

  • Can handle payment swings
  • Believe rates could fall or want prepayment flexibility
  • May convert to fixed later with your lender

Watch-outs

  • Payments can rise if prime increases
  • Static-payment variables can hit a trigger point (payment may be adjusted)
  • Rates can be volatile near Bank of Canada decision dates
Compare Payments → Check Affordability → All Calculators →

FAQs

Is 5-year fixed the “standard” in Canada?

It’s the most common term because it locks payments for five years while keeping amortization flexible (e.g., 25 years).

How are fixed rates set?

They follow 5-year Government of Canada bond yields plus a lender spread, with adjustments for borrower and product risk.

How are variable rates set?

Banks price variable rates off prime. When the Bank of Canada changes its overnight rate, prime typically moves shortly after.

How much does a 0.25% prime change move my payment?

Rule of thumb: about $13 per $100,000 of mortgage for a 25-year amortization. Example: $500,000 balance ≈ $65/month. Exact amounts vary by term and amortization.

What about penalties?

Variable penalties are often three months’ interest. Fixed terms can use an interest-rate differential (IRD). Always check your lender’s specifics before signing.

Can I convert a variable to fixed?

Often yes via a conversion with your lender, usually into a fixed term equal to or longer than the remaining term.

Which should I choose?

Fixed = certainty. Variable = flexibility and potential savings if rates fall. Use the calculators to compare payments and to confirm you pass the stress test for your scenario.