A fixed mortgage locks your rate for the whole term. A variable moves with your lender's prime rate, which tracks the Bank of Canada. That single difference — certainty versus exposure — is the entire decision. Everything else is detail.
The core trade-off
With a fixed rate you buy insurance against rates rising: your payment and your rate are set, whatever the Bank of Canada does. With a variable rate you accept the risk of increases in exchange for a rate that's usually lower at the start — and that falls immediately if the central bank cuts.
Historically, variable rates have cost borrowers less on average — but “on average” is cold comfort in a year when rates climb and your payment jumps. The right question is personal: can your budget and your nerves handle a payment that moves?
Reading the spread
The “spread” is the gap between today's fixed and variable rates. When variable sits well below fixed, you're being paid to take the risk. When they're close — or variable is higher, as happens when cuts are expected — the case for fixed strengthens because you give up little to lock in.
A useful frame: the spread is the price of certainty. A 0.90% spread on a $500,000 mortgage is roughly $375 a month you're paying, up front, to not worry about rate moves.
The break-even test
Variable only “wins” if rates stay low enough, long enough, that the savings beat the fixed premium before any increases catch up. Run it as a break-even: how many rate hikes, and how soon, would erase the head start? Try it below.
Fixed-vs-variable break-even
When variable starts above fixed, you'd need cuts before variable pulls ahead. When variable starts below, that gap is your cushion against future hikes.
The penalty difference few mention
If you break your mortgage early, the penalty is usually far larger on a fixed than a variable. Fixed penalties use an interest-rate differential (IRD) that can run to many thousands; most variable penalties are simply three months' interest. If there's any chance you'll move, sell, or refinance mid-term, that asymmetry is a real point in variable's favour.
Who each tends to suit
- Fixed — tight budget with no room for a payment increase, a first mortgage where certainty lowers stress, or a plan to hold the full term.
- Variable — financial cushion to absorb increases, a view that rates will hold or fall, or a real chance of breaking early.
- A hybrid — some lenders split your mortgage into fixed and variable portions, splitting the difference deliberately.
The bottom line
Neither choice is a mistake if it's made on purpose. Price the spread, run the break-even, weigh the penalty risk against your plans — then choose. If you'd like a second set of eyes, a licensed broker can pressure-test the decision against your exact file and today's live rates.
See where fixed and variable actually sit for your scenario, side by side.