Canada Mortgages

Fixed vs Variable Mortgage in Canada: A Tale of Two Neighbours

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Last reviewed: October 2026 · By the MortgageCompass Editorial Team · How we research

In Canada, a five-year fixed mortgage locks your rate for the whole term, while a variable rate moves with your lender’s prime rate, which follows the Bank of Canada. Today the gap is wide: on October 15, 2026, nesto listed five-year variable rates from 3.41%, against 4.59% for an insured five-year fixed and 5.09% uninsured. To see what that choice really means, here is the story of two neighbours who faced it at the worst possible moment: spring 2021.

Ana and Ben are fictional, but every rate change in their story is a real Bank of Canada decision. Both borrowed $500,000 over 25 years in March 2021. Ana fixed for five years; Ben chose variable.

Two neighbours, one rate cycle

2021Bank of Canada at a record low of 0.25%
ANA · FIXED
Fixes for five years at 1.99%. Payment: $2,115 a month, guaranteed until 2026.
BEN · VARIABLE
Takes prime minus 0.95%, which is 1.50%. Payment: $2,000. He is saving $115 a month and feels clever.
2022Seven rate increases, from 0.25% to 4.25%
ANA · FIXED
Nothing changes. Ana reads the headlines and keeps paying $2,115.
BEN · VARIABLE
His rate climbs with every announcement and reaches 5.50% by December. Payment: about $3,011, almost $900 more than Ana.
2023Three more increases, peaking at 5.00% in July
ANA · FIXED
Still $2,115. By early 2023 Ana has paid about $7,200 less interest than Ben in total.
BEN · VARIABLE
Rate hits 6.25%. Payment peaks at about $3,220. Many real borrowers with fixed-payment variable mortgages reached their “trigger rate” this year, when the payment no longer covered the interest.
2024Cuts begin in June: five cuts, down to 3.25%
ANA · FIXED
Ana’s payment is unchanged. Her renewal is now on the horizon.
BEN · VARIABLE
Relief at last. His rate falls to 4.50% by December and his payment to about $2,764.
2025Four more cuts, down to 2.25% by October
ANA · FIXED
Ana starts comparing renewal offers and realizes her 1.99% will not come back.
BEN · VARIABLE
Rate down to 3.50% and payment to about $2,527, still above what he paid in 2021.
2026Renewal time
ANA · FIXED
Total interest: about $45,700. Balance left: $418,800. Renewing at today’s fixed rates pushes her payment to roughly $2,660 to $2,770.
BEN · VARIABLE
Total interest: about $96,300. Balance left: $435,700. Ben paid over $50,000 more interest than Ana over the five years.

Ana won decisively, because she locked in just before the fastest rate increases in a generation. Over most of the past few decades variable rates often came out ahead, which is exactly why Ben’s choice looked sensible at the time. The lesson is not that fixed always wins; it is that a variable rate only pays off if rates stay flat or fall, and you need to be able to survive the years when they do not.

Run the race yourself

Replay Ana and Ben’s five years with your own mortgage amount, then switch to the next five years and pick the Bank of Canada path you think is most likely.

The interest race: fixed vs variable

Watch total interest pile up year by year. Replay the real 2021 to 2026 rate cycle, or race the next five years under the scenario you think is most likely.

Fixed$0
Variable$0
Total interest after
Year 0
Press start to run the race.

$ figures in Canadian dollars, 25-year amortization, monthly payments. The fixed rate uses semi-annual compounding. The variable rate is prime minus your discount, with the payment adjusted after each Bank of Canada change; many lenders keep the payment fixed instead. History mode uses actual Bank of Canada decisions from March 2021. Race mode starts at prime of 4.45% (Bank of Canada 2.25%) and default rates from nesto on October 15, 2026. Not a forecast or financial advice.

With today’s default rates, the variable mortgage saves about $27,600 in interest over five years if the Bank of Canada simply holds at 2.25%, and about $38,200 if it cuts to 1.75%. If it raises its rate to 4.25% over the next few years, the fixed rate wins by around $8,200. The variable starts so far below the fixed rate that rates would need to rise substantially before fixing pays off. That is the opposite of 2021, when variable rates started only about half a point below fixed rates and had nowhere to go but up.

What else separates fixed and variable in Canada

  • Breaking the mortgage: the penalty on a variable rate is usually three months’ interest. On a fixed rate it is the greater of three months’ interest or the interest rate differential, which can be many times larger. If you might sell or refinance before the term ends, this matters. Our Canadian mortgage rates guide includes a penalty estimator.
  • Payment type: some variable mortgages adjust the payment when prime changes; others keep it fixed and change how much goes to principal. With a fixed payment, sharp rate rises can push you to your trigger rate.
  • Locking in: most lenders let you convert a variable to a fixed rate during the term, at the fixed rates on offer then.
  • Qualifying: both are tested at the higher of 5.25% or your contract rate plus two points. See our stress test guide.

So which should you choose in 2026?

Fixed suits you if your budget could not absorb a payment rise of several hundred dollars, or if you value knowing your costs until 2031. Variable suits you if you have a buffer, might break the mortgage early, and believe the Bank of Canada is more likely to hold or cut than to raise rates sharply. If you cannot decide, a shorter fixed term or a hybrid mortgage that splits the loan between fixed and variable is a middle path offered by some lenders.

Sources

This guide is for informational purposes only and is not financial advice. Ana and Ben are fictional examples; their figures assume a $500,000 mortgage, a 25-year amortization and a variable payment that adjusts with prime. Past rate movements do not predict future ones. Speak to a licensed mortgage professional before choosing a mortgage.

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