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The first big decision when mortgage planning is determining between a fixed vs. variable rate mortgage. Although it might seem confusing to begin, these concepts are actually quite simple.

Here you will learn about fixed and variable mortgages, the key differences between these mortgage options, and finally some guidelines on selecting the best rate for your financial situation.


A variable rate mortgage is based on the lender’s prime rate, which is typically based on the Bank of Canada’s prime rate. In short, the interest rate will vary depending on the current posted prime rate. An important factor, however, is that the monthly mortgage payments remain the same. What changes based on the prime rate variance is how much of a monthly payment applies to the principal and how much applies to interest. The long-term effect of this variance is that it can change the time it takes to pay off the mortgage.


  • Potentially lower costs over time. If rates remain the same or drop over your term, then you will pay less overall compared to a fixed rate.
  • Minimal break penalties. Most lenders change only three months of interest in the event that the contract needs to be broken.
  • Freedom to switch to a fixed rate mortgage. Many lenders allow people to switch from a variable rate mortgage to a fixed rate mortgage at any point in time.


  • Lack of stability. If rates rise over your term, then you could end up paying more overall compared to a fixed rate.
  • Switching to a fixed rate could cost more. Converting to a fixed rate will be at the current interest rate, which might be higher compared to when the mortgage started.


A fixed rate mortgage stays the same for the entire length of the term. The rate doesn’t depend on any other factor and will not fluctuate across time. Since it is a guarantee of rate stability, however, the interest rate is typically higher compared to a variable rate. Most people enter a 5-year fixed rate term. Although, the term can range between 6 months to 10 years. If a term is longer, then that guarantee of stability across time will result in a higher interest rate. Meanwhile, choosing a shorter term provides less stability over time but also offers a smaller interest rate.


  • Guaranteed stability. The interest rate is guaranteed to remain the same over the term, regardless of any variance in the lender’s prime rate.
  • Mortgage predictability. Every mortgage payment will allocate the exact same amount to the principal and interest. That means borrowers will know exactly how long it will take to pay off the mortgage.


  • Potentially higher costs overall. If the prime lender rates drop, then it is possible that the fixed rate is higher than the variable rate. That means that the overall interest paid would be more for a fixed term compared to a variable mortgage.
  • Break penalties. Some lenders charge large fees to break a fixed mortgage contract, for instance in the event of selling the home.


Every financial situation warrants a different approach to deciding between a fixed or variable mortgage. It’s best to speak with your financial adviser or mortgage broker to determine the option that best meets your goals.

If you look at the trends in mortgage rates across the country, the most common rate is fixed. Meanwhile, the rate that tends to save the most money over time is a variable mortgage. Why is this the trend?

One of the big factors when choosing a mortgage isn’t solely based on the numbers. In addition to the interest rate, risk tolerance and capacity to manage a fluctuating rate plays a large role.

Here are some points to consider when choosing a mortgage:

  • Interest rates predictions. If you believe interest rates will rise, then a fixed mortgage will lock in a better rate. If rates go down, however, then a variable mortgage can save you money.
  • Personal risk tolerance. If you are more comfortable with the certainty of knowing exactly what is paid and the time it will take to pay off, then a fixed rate is the best choice.
  • Long-term home goals. If you think you might sell your home and break the mortgage, then you’ll need to pay a penalty. Variable rates tend to have lesser penalties compared to fixed rates, so a variable mortgage might be the better option.

Learn more about your mortgage options and find the right strategy to meet your goals. Book your free, no obligation consultation and get started today.

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