Fixed vs variable mortgage in Canada, 2026: a decision framework, not a forecast

How to decide between fixed and variable

The fixed versus variable decision is not a bet on interest rates. It is a choice between two different risk structures, and it should be made on the basis of your own circumstances — how long you will hold the mortgage, how likely you are to break it, how much payment variation you can absorb, and what you would do if you were wrong.

Almost everything written on this question is a disguised forecast. “Variable is the smart play right now.” “Lock in while you can.” Those are predictions dressed as advice, and the people making them bear none of the consequences if they are wrong. I am a licensed mortgage agent, not an economist, and I am not going to guess at the Bank of Canada's next decision in a document you might read eight months from now.

What I will do is lay out the structural differences, including the prepayment penalty asymmetry — which is the part a bank will never lead with, and which in dollar terms often matters more than the rate gap that people agonise over.

The penalty asymmetry: the thing a bank will not lead with

Here is the under-discussed point, and it is the reason this guide exists. The prepayment penalty on a fixed mortgage and the prepayment penalty on a variable mortgage are frequently not the same kind of calculation — and the difference can run into thousands of dollars.

FCAC's position is that a prepayment penalty will usually be the higher of three months' interest on the outstanding balance or the interest rate differential. FCAC does not assign one method to fixed mortgages and the other to variable, and I am not going to tell you that it does — you will see that claim made as a flat rule all over the internet and it is not what the regulator says. Your lender's method and your contract decide.

What is true, and important, is this. The interest rate differential is a calculation that compares your rate against a current comparable rate across your remaining term. It has real teeth on a fixed mortgage where you hold a known rate for years. On a variable mortgage, whose rate already tracks prime, there is much less of a differential to compute, and in practice variable penalties frequently resolve to the simpler three-months-interest figure. FCAC also notes that lenders usually apply the IRD when your rate is higher than the current rate and you signed less than five years ago — a condition that is structurally easier to meet on a fixed term.

Then there is the second layer, which almost nobody tells borrowers: among fixed mortgages, the IRD methods themselves differ enormously. Several large banks build the calculation around posted rates and reinstate the discount you originally received, which widens the differential. Many monoline lenders use contract rates, which usually produces a smaller number. Identical balance, identical rate, identical remaining term — and penalties thousands of dollars apart purely because of the formula in the contract. Our guide to breaking a mortgage in Ontario works through FCAC's example in full.

The practical conclusion: if there is a realistic chance you break this mortgage early, the penalty structure may cost you more than the rate gap will ever save you. Moving, a growing family, a separation, a business sale, an inheritance, a job in another city — these are not exotic events. Price them.

Trigger rates: the variable-rate concept to understand before you sign

Some variable products adjust your payment every time prime moves. Others keep your payment level and absorb the change by shifting the split between principal and interest. The second kind feels more comfortable, and it carries a mechanic you should understand before you choose it.

If rates rise far enough, the interest portion of a level payment grows until the payment no longer covers the interest accruing. The rate at which that happens is commonly called the trigger rate. Beyond it, the payment stops reducing principal — and depending on the product and the contract, the balance can begin to grow, or the lender can require you to increase your payment, make a lump-sum payment, or convert to a fixed rate.

The specifics are contract terms and they vary between lenders: at what point the lender intervenes, what remedies it can require, and how much notice you get. There is no single industry rule to quote you, which is exactly why this belongs in a conversation about your particular commitment letter rather than in a confident generalisation.

Two questions to ask any lender offering you a fixed-payment variable. First: is my payment fixed or does it float with prime? Second: what is the trigger rate on this mortgage, and what exactly happens when it is reached? A lender that cannot answer the second question crisply is telling you something.

The stress test treats them the same

This one is short, because the answer is short. On an uninsured mortgage at a federally regulated lender, the minimum qualifying rate is the greater of your contract rate plus 2% or 5.25%, and that applies whether you choose fixed or variable. Neither product gives you a qualifying advantage.

People occasionally believe a variable rate helps them qualify because the headline number may be lower. The buffer is added to whatever your contract rate is, so a lower contract rate does produce a lower qualifying rate — but it is not a product loophole, and the 5.25% floor sits underneath both. Our Ontario stress test guide sets out the full picture, including the straight-switch exemption that applies at renewal regardless of which product you hold.

What I will and will not tell you

I will not tell you which product will prove cheaper, because that depends on the future and nobody has it. Anyone who gives you that answer with confidence is either guessing or selling.

I will tell you how each product is priced, what your contract would say about penalties and trigger rates, how your file looks at the qualifying rate either way, and which lenders among the thirty-plus I compare have terms that suit your actual circumstances rather than a hypothetical borrower. I spent years at CIBC and Scotiabank, which means I know how these products are built and priced from the inside. That perspective is more useful to you than a forecast.

And I will tell you when the answer is to do nothing. If you are mid-term and considering breaking a fixed mortgage to move to variable, cost the penalty in full before you go any further — that single number decides most of these conversations. If you are renewing, start with the renewal page, or go straight to switch versus refinance if you are weighing a bigger change. Or call (647) 761-1646 and we will work through the six questions above.

Last reviewed October 2026. The minimum qualifying rate of the greater of contract rate plus 2% or 5.25% is OSFI's current setting for uninsured mortgages and is reviewed at least annually. The description of prepayment penalties follows FCAC's published guidance. Product features — payment behaviour on variable mortgages, trigger rate remedies, conversion rights, penalty methodology and prepayment privileges — are lender and contract specific and change without notice. No interest rate is quoted anywhere on this page, deliberately.