Fixed or variable: decide without guessing the future

Choosing between a fixed and a variable rate means choosing who carries the risk of rate movement: you, or the lender. There is no universal answer. There is an answer that fits your budget, your timeline, and your tolerance for uncertainty.

What each option actually means

A fixed rate locks your payment for the full term you choose, usually one to five years. Your monthly payment does not move if the market rises. In exchange, the penalty for breaking the mortgage early is often higher if you sell or refinance before the term ends.

A variable rate adjusts your payment when the Bank of Canada policy rate changes. Over long periods, variable rates have often cost less overall, but a rapid rise can squeeze a monthly budget quickly. Some lenders offer a variable rate with a fixed payment: the payment stays the same, but the principal portion shifts when rates move.

The questions that actually matter

How much room do you have in your budget if the payment rises? Do you expect to sell or move before the term ends? Is your income stable, or could it fluctuate over the next few years? Honest answers to those three questions matter more than a guess about where rates are headed.

The stress test requires you to qualify at a rate higher than the one offered. That does not mean you must pick a fixed rate out of automatic caution; it means the lender checks that you can handle an adverse scenario.

The link to renewal

The fixed-or-variable decision comes up again at every maturity date. Many homeowners sign the first offer from their current institution without reconsidering the question. Yet the context changes: your remaining balance, your debt ratios, your life plans. Renewal is the natural moment to re-evaluate, not simply to renew the same rate type out of habit.

To see how to negotiate that milestone, read our piece on your bank's renewal letter.

How I work through this decision

I compare both scenarios using your actual numbers: starting payment, impact of a moderate increase, penalty if you need to exit early. I explain the contract conditions, not just the posted rate. If a fixed rate protects you better given your situation, I will say so. If a variable leaves more flexibility without putting your budget at risk, I will say that too.

Comparing costs nothing and commits you to nothing. Reach out before signing a purchase offer or a renewal letter.

Certain conditions may apply. Subject to change without notice.