Fixed vs. Variable: Which Is Right for You?

There is no universally right answer to fixed versus variable. There is a right answer for your situation, your timeline, and how you would actually feel if your payment changed. Anyone who tells you one is always better is selling a forecast.

What each one is

Fixed rate. Your interest rate is locked for the whole term, usually five years. Your payment does not move. You are paying a small premium for that certainty.

Variable rate. Your rate is set as prime minus a discount, and it moves whenever the Bank of Canada changes its policy rate. Your payment either stays the same with the principal-and-interest split shifting, or it moves with the rate, depending on the product.

The real cost difference

Historically, variable rates have cost borrowers less over full terms, because the fixed-rate premium is real money and rate cuts happen more often than sustained increases. But "historically" is not a promise, and the 2022–2023 rate run showed how sharp the downside can be.

Right now the gap is narrow — a five-year fixed and a five-year variable are close, which weakens the classic argument for taking variable risk.

The penalty difference matters more than people think

This is where variable quietly wins for a lot of people:

• Breaking a variable mortgage costs three months' interest. Predictable, usually a few thousand dollars.
• Breaking a fixed mortgage costs the greater of three months' interest or the interest rate differential, which on a big-bank fixed can run $10,000 or more two or three years into the term.

If there is any real chance you will move, refinance, or come into money and want to pay the mortgage off, the variable penalty cap is worth real money as insurance.

How to choose

Take fixed if:

• Your budget has no room for the payment to rise.
• You know you are staying put for the full term.
• Peace of mind is worth the premium to you — and for many people it genuinely is.

Take variable if:

• Your budget can absorb a payment increase without stress.
• Your plans might change within the term.
• You want the flexibility of a low break penalty.

A middle path is a shorter fixed term — two or three years — which limits how long you are committed and often prices only slightly above the five-year.

The right question is not "where are rates going." It is "what happens to me if I'm wrong." Answer that and the choice usually makes itself.