Fixed vs variable rate mortgage in Canada: what to compare first
Last updated:
By Editorial team
A $600,000 home purchase in Ontario with 20% down, compared at 5.24% fixed versus 4.79% variable over a 5-year term on a 25-year amortization, produces a $110/month payment difference. The fixed borrower pays $6,602 more in total payments over that term. This comparison is for Canadian buyers deciding between rate certainty and near-term savings at renewal.
The scenario modeled
Both mortgages share the same purchase price, down payment, amortization, and term. The only variable is the rate type. All calculations use Canadian semi-annual compounding as required by the Interest Act.
| Input | Mortgage A - Fixed | Mortgage B - Variable |
|---|---|---|
| Purchase price | $600,000 | $600,000 |
| Down payment | $120,000 (20%) | $120,000 (20%) |
| Mortgage amount | $480,000 | $480,000 |
| Interest rate | 5.24% fixed | 4.79% variable |
| Amortization | 25 years | 25 years |
| Term | 5 years | 5 years |
| Province | Ontario | Ontario |
The findings
The fixed-rate borrower pays $110 more every month but buys certainty: that payment will not change for the entire 5-year term regardless of what the Bank of Canada does. The variable borrower saves $6,602 in total payments over the term under the modeled conditions, but every 0.25% rate increase from the Bank of Canada adds roughly $62/month to their payment.
| Fixed (5.24%) | Variable (4.79%) | Difference | |
|---|---|---|---|
| Monthly payment | $2,858 | $2,748 | $110/month |
| Interest over 5-yr term | $117,880 | $143,614 | $25,734 more variable |
| Total paid over term | $171,459 | $164,857 | $6,602 more fixed |
Canadian context
The Bank of Canada sets the overnight rate that feeds directly into variable mortgage pricing. Between March 2022 and July 2023, the Bank raised its policy rate by 4.75 percentage points - the fastest tightening cycle in four decades - turning many variable-rate mortgages that had started near 1.5% into 6.5%+ loans. Variable-rate borrowers who renewed during that window saw payments jump by hundreds of dollars per month.
As of early 2026, the overnight rate stands at 2.75%, and the Bank of Canada has signalled it will move carefully as it watches inflation and employment data. Variable rates are once again priced below fixed for many borrowers.
Source: Bank of Canada, "Monetary Policy Report," published January 2026, accessed April 2026. URL: https://www.bankofcanada.ca/monetary-policy/monetary-policy-report/
When this comparison applies - and when it doesn't
This scenario fits when: You have a stable employment income, a 5-year planning horizon with no expected sale or refinance, and sufficient cash reserves to absorb a $200-$300 payment increase mid-term without financial stress. You are also comfortable tracking Bank of Canada rate announcements eight times per year.
It doesn't apply when: You plan to sell or refinance within 3 years. In that case, the variable rate's dramatically lower break penalty (three months of interest versus a potentially large IRD) likely matters more than the $110/month payment difference. It also doesn't apply if your cash flow is tight enough that any rate increase would put you in difficulty - rate certainty has real value that the numbers above do not fully capture. Variable rates do not always start below fixed rates either. In a yield-curve inversion (short-term rates higher than long-term), fixed can be cheaper at inception. Always run your own current rate inputs rather than relying on historical spreads.
Related articles
Frequently asked questions
- What is the break-penalty difference between fixed and variable in Canada?
- Breaking a fixed-rate mortgage early typically costs three months of interest or the Interest Rate Differential (IRD), whichever is greater - and the IRD can run into the tens of thousands of dollars. Variable-rate penalties are capped at three months of interest, which is usually far smaller. If there is any chance you will sell or refinance before term end, the variable penalty is a significant advantage.
- How does the prime rate affect my variable mortgage payments in Canada?
- Most Canadian variable-rate mortgages are priced at prime plus or minus a spread (for example, prime − 0.75%). When the Bank of Canada raises or lowers its overnight rate, chartered banks adjust prime rate within days, and your payment or amortization changes accordingly. A 0.25% rate move on a $480,000 balance shifts a typical payment by roughly $60-$65/month.
- Can I lock a variable rate into fixed mid-term in Canada?
- Yes. Most lenders allow you to convert a variable-rate mortgage to a fixed rate at any point during the term without a penalty, though the fixed rate you receive will be the lender's current posted rate for the remaining term - not a discounted rate. Locking in mid-term can make sense if rates rise sharply, but you lose the lower variable-penalty benefit.
- Does CMHC mortgage insurance change the fixed vs variable decision?
- CMHC insurance covers the lender, not the rate type, so the decision criteria remain the same whether your mortgage is insured or not. However, insured mortgages are capped at a 25-year amortization (or 30 years for first-time buyers on new builds as of August 2024), which affects how much of each payment goes to principal versus interest over the term.