Fixed vs Variable Rate Mortgage Canada
Compare Canadian fixed and variable mortgages. Calculate monthly payments, interest compounding (semi-annual for fixed), and break-even points.
Interactive Comparison Simulator
Adjust the variables below to simulate outcomes, compare interest rates, and see real-time projections.
Side-by-Side Comparison
A direct comparison of features, rules, limits, and eligibility requirements.
| Feature / Detail | Fixed Rate Mortgage | Variable Rate Mortgage |
|---|---|---|
Compounding Rules | Semi-annually (by law in Canada) | Monthly |
Break Penalties | Higher of 3 months' interest or Interest Rate Differential (IRD) | Strictly capped at 3 months' interest |
Payment Stability | Fixed payment for duration of term (e.g. 5 years) | Adjustable payment or variable interest amortization |
Inflation Protection | Low (eroded by inflation) | High (beats inflation long-term) |
Management Effort | None (passive) | Low (automated or index-tracked) |
Pros & Cons Breakdown
Analyze the advantages and drawbacks of each financial product before making a decision.
Fixed Rate Mortgage Pros & Cons
Advantages
- Complete peace of mind; repayments never change.
- Protected if the Bank of Canada raises interest rates.
- Easy budget forecasting.
Disadvantages
- Extremely high exit penalties (IRD) if you break the loan.
- Will not benefit if prime rates fall.
- Locked in for terms, typically 5 years in Canada.
Variable Rate Mortgage Pros & Cons
Advantages
- Capped break penalties (3 months' interest).
- Immediately benefits from Bank of Canada rate cuts.
- Historically cheaper than fixed over long periods.
Disadvantages
- Repayments rise if Bank of Canada hikes interest rates.
- Risk of hitting a 'trigger rate' where payments don't cover interest.
- Stress of constant variable changes.
The Verdict
Fixed is best for strict budget security; Variable is best for lower exit penalties.
A fixed mortgage is the standard Canadian choice for security. A variable mortgage is highly recommended if you plan to sell or break the mortgage early, as fixed-rate IRD penalties can be massive.
Choose Fixed Rate Mortgage if...
Conservative budgeters, and families wishing for fixed payouts.
Choose Variable Rate Mortgage if...
Buyers planning to refinance, sell, or those expecting rate declines.
Frequently Asked Questions
Common questions answered regarding Fixed Rate Mortgage and Variable Rate Mortgage.
For variable mortgages with fixed payments, the trigger rate is when the interest rate rises so much that your monthly payment only covers interest and no principal.
By Canadian law, fixed-rate mortgages are compounded semi-annually, which makes the effective rate slightly lower than monthly compounding.
This comparison is reviewed regularly and updated when tax laws, interest rates, or contribution limits change in the country.