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-rate or variable-rate mortgage. The right option depends on your financial goals, risk tolerance and how comfortable you are with potential changes to your mortgage payments over time. 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. Understanding how each option works can help you choose the mortgage that's right for your situation.
What's the difference between fixed and variable rates?
With a fixed-rate mortgage, the mortgage rate and payment you make each month will stay the same for the length of your mortgage term. With a variable-rate mortgage, however, the mortgage rate can change alongside the prime lending rate set by your lender. A variable rate will be quoted as Prime +/- a specified percentage, such as Prime - 0.45%. Though the prime lending rate may fluctuate, the mortgage rate’s price relationship to prime will stay constant over your term. Beyond how the rate is calculated, there are several key differences between fixed and variable mortgages that can affect your costs, flexibility and overall borrowing experience.
- Monthly payment stability: Fixed-rate mortgages provide consistent monthly payments throughout the term. Variable-rate mortgages may experience payment changes depending on the mortgage structure and movements in the prime rate.
- Interest rate risk: Fixed-rate borrowers are protected from rising interest rates, but won’t benefit if interest rates drop during their term. Variable-rate borrowers assume more risk but may benefit when rates fall.
- Potential long-term costs: Historically, variable-rate mortgages have often been less expensive than fixed-rate mortgages because borrowers are compensated for taking on additional interest rate risk. However, this is not guaranteed.
- Mortgage penalties: Variable-rate mortgages typically have lower penalties if you break your mortgage before the end of the term, usually the equivalent of three months’ worth of interest. Fixed-rate mortgages often carry higher penalties, especially if rates have declined since you first signed your mortgage.
- Flexibility at renewal: Both mortgage types can be renewed at the end of the term. However, choosing between fixed and variable at renewal often depends on the interest rate environment and your financial goals at that time.
5-year fixed vs. variable mortgage rates over time
Historically, variable mortgage rates have often been lower than comparable fixed rates because borrowers assume the risk that interest rates may rise during their term. However, market conditions can sometimes reverse this relationship. 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 post-COVID lockdowns, the Bank of Canada reacted by hiking its benchmark overnight lending rate a historic 10 times in a row; as a result, for the entirety 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 both bond yields lowered, and the Bank of Canada largely reversed those rate hikes with a series of nine rate cuts between June 2024 and October 2025, bringing the overnight lending rate from 5% to 2.25%.
As of June 2026, fixed mortgage rates are now sharply on the rise, as bond yields spike in response to the ongoing war in Iran and resulting pressures on energy prices and inflation. This has once again created a gap between fixed and variable rates, with many variable-rate mortgages now carrying 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.
5-year fixed vs. variable mortgage rates (interactive graph)
Popularity of fixed versus variable mortgage rates
Fixed-rate mortgages have historically been the more popular choice among Canadian borrowers, and that remains true today. According to the 2025 CMHC Mortgage Consumer Survey, nearly two-thirds of mortgage shoppers chose a fixed-rate mortgage, compared to 25% choosing a variable-rate mortgage and 9% a combination of fixed and variable rates. This preference reflects the value many borrowers place on payment certainty, particularly after experiencing the rapid interest rate increases of 2022 and 2023.
However, borrower preferences can shift quickly when the rate environment changes. During 2021 and early 2022, variable mortgage rates were significantly lower than comparable fixed rates, making them an attractive option for many Canadians. As a result, variable-rate mortgages surged in popularity:
- More than 50% of new mortgages and renewals were variable-rate mortgages in the second half of 2021, according to CMHC
- Variable-rate mortgages accounted for 25% of Canadian mortgage debt by the end of 2022, up from 20% in 2019, according to Mortgage Professionals Canada.
That trend reversed when the Bank of Canada began aggressively raising interest rates. Between March 2022 and January 2023, the Bank implemented eight consecutive rate hikes, causing variable mortgage rates to rise sharply and reducing their appeal for many borrowers. The same Mortgage Professionals Canada study found that 3 in 10 variable-rate mortgage holders were actively considering converting to a fixed rate, while another 3 in 10 had also considered that option but decided against it.
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What influences fixed and variable mortgage rate?
By and large, fixed mortgage rates follow the pattern of Government of Canada bond yields, plus a spread, where bond yields are driven by economic factors such as unemployment, export and inflation.
5-year fixed rates vs. 5-year bond yields
While many of the same economic forces influence both mortgage types, variable rates are tied more directly to changes in the prime lending rate, which moves in response to Bank of Canada interest rate decisions. Variable mortgage rates are typically stated as prime plus/minus a percentage discount/premium. For example, a variable rate could be quoted as prime - 0.8%. So, when the prime rate is, say, 5%, you will pay 4.2% (5%-0.8%) interest.
Prime lending rates
Lenders’ prime rates are based on the Bank of Canada’s Overnight Lending Rate, which the central bank adjusts depending on the state of the economy, as determined by the economic factors introduced above. Together, combinations of unemployment, exports, and manufacturing values shape the inflation rate. Generally speaking, when inflation is high, the Bank of Canada will increase the overnight lending rate – which in turn impacts prime rates – to make the act of borrowing money more expensive. Conversely, when inflation is low, the Bank of Canada will decrease its benchmark rate to stimulate the economy and improve the attractiveness of borrowing; when this occurs, lenders also lower their prime rates in tandem.
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.