In short
Fixed gives you a predictable payment. Variable can save money when rates fall and cost more when they rise.
The right one comes down to your budget and how much uncertainty you can live with.
How fixed and variable rates work
A fixed rate is set for your whole term, so your payment stays the same until renewal. A variable rate is usually your lender's prime rate plus or minus a set amount, so it moves when prime moves.
Lenders' prime rates generally follow the Bank of Canada's policy rate. When the Bank cuts or raises its rate, variable rates usually follow within days.
Fixed rates are priced off bond yields, so they can move even when the Bank of Canada hasn't changed its rate.
What happens to my payment when rates change?
With an adjustable-rate mortgage, your payment changes as prime changes. With a variable mortgage that has a fixed payment, the payment stays the same but more or less of it goes to interest.
If rates rise far enough on a fixed-payment variable mortgage, your payment may no longer cover the interest. Lenders handle this differently, so ask how yours works before you sign.
Penalties and the stress test
Breaking a mortgage early usually costs the higher of three months' interest or the interest rate differential (IRD). Many lenders charge only three months' interest on variable mortgages, while fixed mortgages often trigger the IRD, which can be much larger.
Either way, you qualify at the stress test rate: the greater of your contract rate plus 2% or 5.25%. Choosing variable doesn't let you borrow more.
How to choose
Fixed suits people who want a predictable payment and plan to keep the mortgage for the full term. Variable can suit people with room in their budget and who may need to break the mortgage early.
Nobody can predict rates. Pick the option you can live with if rates move against you, and confirm the details with your lender or mortgage professional.
Some buyers split the difference with a hybrid mortgage, where part of the balance is fixed and part is variable. Not every lender offers it, and penalties apply to each part.
Common questions about fixed vs variable rate
Is it better to get a fixed or variable mortgage in Canada?
Neither is always better; it depends on your budget, risk comfort and plans. Fixed gives a predictable payment for the term. Variable moves with prime and has often carried smaller penalties to break, but your costs can rise if rates go up.
What is the penalty for breaking a variable rate mortgage?
It is commonly three months' interest on the remaining balance. Some lenders apply the same formula to fixed and variable, so check your mortgage contract. Federally regulated lenders must explain how they calculate the penalty, and you can ask for the exact amount before you break.
Does the Bank of Canada rate affect my variable mortgage?
Yes, indirectly, because lenders' prime rates generally move with the Bank of Canada's policy rate. When prime changes, your variable rate changes with it. Depending on your mortgage, that changes either your payment or how much of it goes to interest.
Can I switch from variable to fixed?
Many lenders let you convert a variable mortgage to a fixed rate during the term, usually without a penalty. The new fixed rate is based on what the lender offers at that time and the term you choose. Ask your lender for its conversion rules.
Sources
General information for Ontario, updated October 2026. Not legal, tax or mortgage advice. Rules change, so confirm with your lawyer, lender or the source above before you rely on it.