Variable or Fixed Mortgage Rates
Key takeaways
- Fixed-rate mortgages offer predictable payments and protection from rising interest rates.
- Variable-rate mortgages are priced based on your lender's prime rate and can rise or fall during your term.
- If you break your mortgage early, penalties are typically lower for variable-rate mortgages.
One of the first decisions you'll make when shopping for a mortgage is whether to choose a fixed or variable interest rate. The choice has become especially important in recent years as Canadians have experienced one of the most volatile interest rate environments in decades.
While fixed rates offer certainty, variable rates can provide savings when interest rates fall. The right option depends on your financial goals, risk tolerance and how comfortable you are with potential changes to your mortgage payments over time.
What's the difference between fixed and variable mortgage rates?
With a fixed-rate mortgage, the mortgage rate and monthly payment stay the same for the length of your mortgage term.
With a variable-rate mortgage, the rate changes when your lender’s prime lending rate rises or falls. A variable rate will often be described as “prime plus X%” or “prime minus X%." Though prime may fluctuate, your mortgage rate’s relationship to prime will stay constant over the term.
Fixed vs. variable mortgage rates: Other key differences
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Fixed mortgage rates |
Variable mortgage rates |
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Cost stability |
High. Your mortgage rate and payment do not change during the mortgage term. |
Low. Your rate, and possibly your payment, will change whenever your lender’s prime rate rises or falls. |
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Flexibility |
Low. Making changes to a fixed rate can trigger steep pre-payment penalties. |
High. Variable-rate mortgages can be switched to fixed mid-term. Pre-payment penalties are lower. |
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Pre-payment penalties |
Based on a lender’s Interest Rate Differential calculation. Can be much higher compared to variable-rate penalties. |
Three months’ interest. |
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Historical comparison |
Higher rates and more severe penalties have generally made fixed rates the more expensive option overall. |
Lower rates and lighter pre-payment penalties have generally benefitted borrowers, but periods of high inflation can lead to surging costs. |
Are fixed or variable mortgage rates more popular in Canada?
Fixed-rate mortgages have historically been the more popular choice among Canadian borrowers, but borrower preferences can change in response to mortgage rate trends.
According to the 2025 CMHC Mortgage Consumer Survey, 62% of mortgage shoppers chose a fixed-rate mortgage in 2025, compared to 25% who chose a variable-rate mortgage and 9% who opted for a combination of fixed and variable rates. This preference may reflect the value many borrowers placed on payment certainty after witnessing rapid interest rate increases in 2022 and 2023.
However, CMHC’s spring 2026 Residential Mortgage Industry Report found that home buyers were showing more of an appetite for variable rates. In February 2026, 42% of newly extended mortgages were variable, a possible response to variable rates being lower and expectations that they’d remain stable for the remainder of the year.
What influences fixed and variable mortgage rates?
Fixed mortgage rates
By and large, fixed mortgage rates are influenced by Government of Canada bond yields. As investors buy and sell bonds in response to economic factors such as unemployment, export and inflation, those yields rise and fall. Lenders respond to those changes in yields by raising and lowering their fixed rates.
5-year fixed rates vs. 5-year bond yields
What influences variable mortgage rates?
Variable rates are tied more directly to changes in lenders’ prime lending rates, which move in response to Bank of Canada interest rate decisions. When the Bank increases or decreases its overnight lending rate, financial institutions raise or lower prime by the same amount. These changes impact variable mortgage rates, which are based on prime.
Here’s how it might work in a rising inflation scenario:
- The Bank of Canada determines that inflation is too high.
- The Bank increases the overnight rate by 25 basis points to tamp down inflation.
- Financial institutions add 25 basis points to their prime rates.
- Variable mortgage rates, which are generally expressed as “prime minus X%”, also increase by 25 basis points.
In terms of the discount/premium on the prime rate applied to variable rates, mortgage lenders set this based on their desired market share, competition, marketing strategy and general credit market conditions. These are the same factors that drive the spread between lenders' fixed mortgage rates and bond yields.
How does the Bank of Canada decide interest rates?
The Bank of Canada adjusts the overnight rate based on the state of the economy, as determined by various economic factors — unemployment, exports, manufacturing — and the inflation rate.
Generally speaking, when inflation is high, the Bank of Canada increases the overnight rate to make borrowing money more expensive and slow price growth across the country. When inflation is low, the Bank of Canada may decrease its benchmark rate to improve the attractiveness of borrowing and stimulate the economy.
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5-year fixed vs. variable mortgage rates over time
Because variable mortgage rates carry the risk of increasing, lenders typically price them lower than comparable fixed rates. That’s not always the case, though.
You'll notice in the chart below that in late 2019, 5-year variable rates were higher than fixed rates, while towards the end of 2022, the spread between 5-year variable and fixed rates was virtually non-existent.
However, as inflation spiked after the COVID-era lockdowns, the Bank of Canada reacted by hiking its benchmark overnight lending rate a historic 10 times in a row. For all of 2024, 5-year variable mortgage rates were noticeably higher than 5-year fixed rates. The spread between the two then narrowed considerably in 2025, as bond yields receded and the Bank of Canada announced nine consecutive rate cuts between June 2024 and October 2025, bringing the overnight lending rate from 5% to 2.25%.
The overnight rate has held steady since then, keeping variable rates stable. Fixed rates have been far more volatile.
As of October 2026, the government bond yields that lenders use to price their fixed rates have been driven higher by the war in Iran’s impact on energy prices and inflation. Lenders have responded by raising their 5-year fixed rates multiple times since the beginning of the war. Many variable-rate mortgages now carry lower rates than comparable fixed-rate options. Whether they prove to be less expensive over the full mortgage term will depend on the path of future interest rates.