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What is Fixed and variable rates? · Concepts

Fixed and variable rates

With a fixed rate the interest and the payment do not change during the term. With a variable rate the interest follows the bank's prime rate, which moves with the Bank of Canada's policy rate.

Updated October 22, 2026

The variable rate usually starts lower and its early-exit penalty is three months' interest; the fixed rate offers certainty, but its penalty can be much higher (interest rate differential). Many variable mortgages keep a fixed payment: if the rate rises, more of the payment goes to interest, up to the trigger rate, at which point the lender requires a higher payment.

The choice depends on your risk tolerance, how long you plan to stay in the property and the spread between the two rates at the time. There is no universal answer; there is the answer for your situation.

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