Fixed vs. Variable Rate

Compare fixed and variable mortgage rates in Canada, and learn how to choose based on your financial goals, risk tolerance, and market trends.

Fixed vs. Variable Rate

May 22, 2025


What is a Fixed vs. Variable Rate?

Fixed vs. variable rate refers to the difference between two types of mortgage interest structures: one with a constant rate and one that fluctuates with market changes.

Why Fixed vs. Variable Rates Matter in Real Estate

In Canadian real estate, choosing between a fixed or variable mortgage rate is one of the most important decisions for homebuyers. Each option offers distinct benefits and risks:

- Fixed rate mortgages have a locked-in interest rate for the term (e.g., 5 years), providing predictable payments and stability.
- Variable rate mortgages fluctuate with the lender’s prime rate, potentially offering lower initial rates but higher risk if rates rise.

Pros of Fixed Rate:
- Budget certainty
- Protection from interest rate hikes

Pros of Variable Rate:
- Historically lower average rates
- Potential savings if rates fall or stay low

The right choice depends on market outlook, financial comfort with risk, and how long the homeowner plans to stay in the property. Some borrowers opt for hybrid mortgages, combining both types.

Understanding this trade-off is key to managing long-term mortgage costs and financial stability.

Example of Fixed vs. Variable Rates in Action

A homeowner chooses a 5-year fixed rate at 5.2%, while their friend selects a variable rate at prime minus 1%, currently 4.8%. When rates rise, the variable rate eventually surpasses the fixed rate.

Key Takeaways

  • Fixed = stable, predictable payments.
  • Variable = fluctuates with market rates.
  • Variable may offer initial savings.
  • Fixed provides peace of mind in volatile markets.
  • Decision affects long-term mortgage costs.

Related Terms

Additional Terms

Public Realm Improvements

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Mortgagee in Possession

A mortgagee in possession is a lender who takes control of a property after borrower default, but before foreclosure or power of sale. The lender. more

Lease Surrender Agreement

A lease surrender agreement is a negotiated contract between a landlord and tenant that ends a lease before its scheduled expiration. Terms may. more

Green Infrastructure

Green infrastructure refers to natural or engineered systems that manage stormwater, reduce heat, and improve sustainability in developments.. more

Escrow Holdback

An escrow holdback is a portion of funds withheld at closing and held in escrow until specific conditions are met, such as completion of repairs,. more

Underused Housing Tax

The Underused Housing Tax (UHT) is a federal annual 1% tax on the value of vacant or underused residential property owned by non-resident,. more

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