One of the most common questions I get from buyers across the GTA and Niagara: "Should I go fixed or variable?" There's no universal answer, but there is a right answer for your situation. Here's the framework I share with clients.
How Canadian mortgages work
Unlike the American 30-year fixed, Canadian mortgages are built from two pieces:
- Amortization - the total time to pay off the loan, typically 25 years (up to 30 for many buyers).
- Term - the length of your current rate contract, most commonly 5 years. When the term ends, you renew at whatever rates are then.
Within each term, you choose fixed (your rate is locked for the term) or variable (your rate moves with your lender's prime rate, which follows the Bank of Canada).
The case for fixed
- Certainty. Your payment is locked for the full term. Budgeting is simple.
- Protection. If the Bank of Canada hikes, you're insulated until renewal.
- Simplicity. No watching rate announcements eight times a year.
Fixed makes the most sense if your budget is tight enough that a payment jump would hurt, or you simply sleep better with certainty. One caution: fixed-rate mortgages usually carry larger penalties if you break the mortgage mid-term - and life happens, so ask your lender how the penalty is calculated before you sign.
The case for variable
- Historically cheaper. Over most long periods, variable rates have cost Canadian borrowers less than fixed - though not always.
- Smaller penalties. Breaking a variable mortgage typically costs three months' interest, versus a potentially much larger rate-differential penalty on fixed.
- Flexibility. Most variable mortgages let you convert to fixed later if rates start climbing.
Variable suits buyers with room in their budget to absorb a payment increase, and those who may sell or refinance before the term is up.
Don't forget the stress test
Federally regulated lenders qualify you at the higher of your contract rate plus 2% or the minimum qualifying rate - so your buying power is tested against a tougher number than you'll actually pay. This is one more reason to get fully pre-approved before you shop: the stress test, not the sticker rate, sets your ceiling.
Three questions to ask yourself
- How long will I realistically own this home? Job changes, family plans, and space needs all factor in - and they drive both term choice and penalty risk.
- Could I afford the payment if rates rose 2%? If that number would break your budget, choose fixed.
- What's the spread? If variable is only slightly below fixed, the flexibility may not be worth the uncertainty. If the gap is wide, the math gets interesting.
Run your own numbers
Our mortgage calculator lets you compare payments at different rates and amortizations in seconds. And if you'd like an introduction to mortgage brokers my clients have had great experiences with, I'm happy to connect you - you'll get honest options.
This article is general information, not financial advice. Always consult your lender or mortgage broker about your specific situation.