Fixed or variable? It's one of the biggest decisions you'll make when getting a mortgage. Choose fixed and you get certainty — your rate and payment never change. Choose variable and you could save thousands, but rates can rise or fall. Here's how to decide which is right for you in 2026.
Fixed vs Variable Mortgage: Complete Comparison (2026)
| Feature | Fixed Rate | Variable Rate |
|---|---|---|
| Current 5-Year Rates | ~4.29% | ~3.45% |
| Rate Changes | Locked for term | Tied to BoC prime |
| Payment Stability | 100% stable | Fluctuates |
| Penalty to Break | Higher of 3mo interest or IRD | 3 months interest only |
| Best For | Risk-averse, stable budget | Risk-tolerant, potential savings |
| Historical Savings | 20-30% of time | 70-80% of time |
2026 Rate Environment
The Bank of Canada's policy rate is currently 2.25% (down from 5.00% in 2023), bringing prime rate to 4.45%. Fixed rates are influenced by bond markets and are typically higher than variable initially, but provide certainty. Variable rates move with BoC decisions, which happen 8 times per year.
Breaking Penalty: The Big Difference
Breaking a variable mortgage costs 3 months' interest (~$7,000 on $500K). Breaking a fixed mortgage can cost $15,000-$30,000+ due to the Interest Rate Differential (IRD) calculation. If you think you might sell, refinance, or move before your term ends, variable is often better because the penalty is much lower.
Fixed vs Variable Mortgage Calculator
Use our interactive calculator to compare monthly payments and total interest costs between fixed and variable rates over 5 years.
Fixed vs Variable Mortgage Calculator
Compare monthly payments and total interest costs between fixed and variable rate mortgages over 5 years.
Fixed Rate
Variable Rate
Fixed Rate: Your rate and payment stay the same for the entire term (usually 5 years). Provides stability and protection from rate increases, but you're locked in even if rates drop.
Variable Rate: Your rate fluctuates with the Bank of Canada's prime rate. Often starts lower than fixed, but can increase if rates rise. Penalties for breaking are typically lower (3 months' interest vs IRD on fixed).
Get Your Mortgage Comparison Emailed to You
Enter your email to receive a personalized mortgage comparison plus our complete Mortgage Rate Shopping Checklist.
Or get the complete Canadian Money Starter Pack — FHSA cheat sheet, TFSA rules, RRSP basics, and CPP timing guide in one download.
No spam, unsubscribe anytime. Privacy guaranteed.
Real-World Examples
Let's look at three real scenarios to see how fixed vs variable mortgages work in practice:
First-Time Buyer Chooses Fixed
Prioritizing payment certainty and budgeting
Scenario:
- •Alex & Jordan, ages 31 & 29: First-time home buyers
- •Mortgage: $600,000 at 5.24% fixed, 25-year amortization
- •Reasoning: Tight budget, can't afford payment increases
Result: Alex and Jordan pay $3,554/month for 5 years with zero surprises. Even if rates drop, they're locked in — but they value the certainty. They know exactly what they'll pay every month, making budgeting simple and stress-free. This is ideal for first-time buyers who are stretching their budget.
Risk-Tolerant Couple Chooses Variable
Betting on rate cuts to save money
Scenario:
- •Maya & Chris, ages 38 & 40: Upgrading to larger home
- •Mortgage: $500,000 at prime - 0.5% (3.95% variable), 25 years
- •Reasoning: Believe BoC will continue cutting rates in 2026
Year 1 Scenario: BoC Holds or Cuts 0.25%
- Starting payment (3.95%):$2,616/month
- After 0.25% cut (3.70%):$2,561/month
- Savings vs fixed:~$5,000/year
Result: If the BoC cuts rates as expected in 2026, Maya and Chris save thousands compared to a fixed mortgage. Their payment drops automatically with each rate cut. However, they accept the risk that if rates rise unexpectedly, their payment could increase. They can afford $200-300/month more if needed, so they're comfortable with variable.
Breaking Early Due to Relocation
Variable saves $20K in penalties
Scenario:
- •David, age 35: Job transfer 2 years into 5-year term
- •Original mortgage: $400,000 variable at 3.95%
- •Must break: Selling home to relocate for work
Result: Because David chose variable, he pays only $5,900 to break his mortgage (3 months' interest). If he had chosen fixed, the IRD penalty would be ~$22,000 — nearly 4x more. This is a huge advantage of variable if you think you might sell, refinance, or need to break your mortgage before the term ends.
Frequently Asked Questions
Frequently Asked Questions
Q:Can I switch from variable to fixed mid-term?
A:Yes, most lenders allow you to convert from a variable rate mortgage to a fixed rate at any time during your term without penalty. This is called a 'lock-in' feature. The fixed rate you get will be the lender's current rate for the remaining term length. For example, if you have 3 years left on your variable mortgage and rates are rising, you can lock in to a 3-year fixed rate. However, you cannot switch from fixed to variable without breaking your mortgage and paying the penalty.
Q:What's a convertible mortgage and should I get one?
A:A convertible mortgage is a short-term (usually 6 months to 1 year) mortgage that can be converted to a longer fixed or variable term at any time without penalty. It's useful if you think rates will drop soon and want to wait before committing to a longer term. However, convertible mortgages typically have higher rates than standard mortgages. They're best for people who are unsure about their plans or expect rates to change significantly in the next few months.
Q:Should I go variable in 2026?
A:It depends on your risk tolerance and the rate environment. In 2026, the Bank of Canada's policy rate is 2.25% (down from pandemic highs of 5.00%), which has brought prime rate to 4.45%. Variable mortgages are currently competitive with fixed rates. Historically, variable has saved borrowers money 70-80% of the time over the long run. However, if you can't afford payment increases if rates rise, or if you value certainty and stable budgeting, fixed may be better. Consider: can you afford an extra $200-300/month if rates increase? If no, go fixed for peace of mind.
Q:What's the difference between breaking a fixed vs variable mortgage?
A:Breaking a variable rate mortgage costs 3 months of interest — simple and predictable. For example, on a $500K mortgage at 3.95%, breaking costs about $4,900. Breaking a fixed mortgage costs the greater of 3 months' interest OR the Interest Rate Differential (IRD), which can be $15,000-$30,000+ depending on how much rates have dropped since you locked in. The IRD is the lender's lost profit from you breaking early. This makes variable mortgages much cheaper to break, which matters if you might sell, refinance, or move before your term ends.
Q:How often do variable mortgage rates change?
A:Variable mortgage rates are tied to the Bank of Canada's policy rate, which is reviewed 8 times per year (roughly every 6 weeks). When the BoC changes its rate, prime rate changes the next business day, and your variable mortgage rate adjusts immediately or on your next payment. For example, if the BoC cuts by 0.25%, prime drops by 0.25%, and your rate drops by 0.25%. Through 2024 and into 2025, the BoC cut rates 7 times (from 5.00% to 2.25%), giving variable mortgage holders significant payment relief heading into 2026.
Q:What's the difference between adjustable and variable rate mortgages?
A:Both are tied to prime rate, but they handle rate changes differently. Variable rate mortgage: When rates change, your payment changes. If rates drop, you pay less; if rates rise, you pay more. Adjustable rate mortgage: Your payment stays the same, but the amount going to principal vs interest changes. If rates rise, more goes to interest and less to principal (extending your amortization). If rates rise too much, you could hit a 'trigger rate' where your payment doesn't cover interest, requiring a lump sum payment or payment increase. Most people prefer true variable (payment adjusts) for transparency.
Question: Can I switch from variable to fixed mid-term?
Answer: Yes, most lenders allow you to convert from a variable rate mortgage to a fixed rate at any time during your term without penalty. This is called a 'lock-in' feature. The fixed rate you get will be the lender's current rate for the remaining term length. For example, if you have 3 years left on your variable mortgage and rates are rising, you can lock in to a 3-year fixed rate. However, you cannot switch from fixed to variable without breaking your mortgage and paying the penalty.
Question: What's a convertible mortgage and should I get one?
Answer: A convertible mortgage is a short-term (usually 6 months to 1 year) mortgage that can be converted to a longer fixed or variable term at any time without penalty. It's useful if you think rates will drop soon and want to wait before committing to a longer term. However, convertible mortgages typically have higher rates than standard mortgages. They're best for people who are unsure about their plans or expect rates to change significantly in the next few months.
Question: Should I go variable in 2026?
Answer: It depends on your risk tolerance and the rate environment. In 2026, the Bank of Canada's policy rate is 2.25% (down from pandemic highs of 5.00%), which has brought prime rate to 4.45%. Variable mortgages are currently competitive with fixed rates. Historically, variable has saved borrowers money 70-80% of the time over the long run. However, if you can't afford payment increases if rates rise, or if you value certainty and stable budgeting, fixed may be better. Consider: can you afford an extra $200-300/month if rates increase? If no, go fixed for peace of mind.
Question: What's the difference between breaking a fixed vs variable mortgage?
Answer: Breaking a variable rate mortgage costs 3 months of interest — simple and predictable. For example, on a $500K mortgage at 3.95%, breaking costs about $4,900. Breaking a fixed mortgage costs the greater of 3 months' interest OR the Interest Rate Differential (IRD), which can be $15,000-$30,000+ depending on how much rates have dropped since you locked in. The IRD is the lender's lost profit from you breaking early. This makes variable mortgages much cheaper to break, which matters if you might sell, refinance, or move before your term ends.
Question: How often do variable mortgage rates change?
Answer: Variable mortgage rates are tied to the Bank of Canada's policy rate, which is reviewed 8 times per year (roughly every 6 weeks). When the BoC changes its rate, prime rate changes the next business day, and your variable mortgage rate adjusts immediately or on your next payment. For example, if the BoC cuts by 0.25%, prime drops by 0.25%, and your rate drops by 0.25%. Through 2024 and into 2025, the BoC cut rates 7 times (from 5.00% to 2.25%), giving variable mortgage holders significant payment relief heading into 2026.
Question: What's the difference between adjustable and variable rate mortgages?
Answer: Both are tied to prime rate, but they handle rate changes differently. Variable rate mortgage: When rates change, your payment changes. If rates drop, you pay less; if rates rise, you pay more. Adjustable rate mortgage: Your payment stays the same, but the amount going to principal vs interest changes. If rates rise, more goes to interest and less to principal (extending your amortization). If rates rise too much, you could hit a 'trigger rate' where your payment doesn't cover interest, requiring a lump sum payment or payment increase. Most people prefer true variable (payment adjusts) for transparency.
Download Your Free Mortgage Decision Guide
Get our step-by-step guide to choosing between fixed and variable mortgages, plus a rate comparison checklist.
100% free. No credit card required.
Related Canadian Money Guides
FHSA Guide
Save up to $40K tax-free for your first home before getting a mortgage.
GIC vs HISA
Best place to save your down payment while earning interest.
Home Affordability Calculator
Calculate how much mortgage you can afford based on your income.
Emergency Fund Calculator
Ensure you have enough savings before committing to a large mortgage payment.
Need Personalized Mortgage & Home Buying Advice?
Our Certified Financial Planners can help you choose the right mortgage type, negotiate rates, and create a comprehensive home buying plan that fits your budget and goals.