Variable vs Fixed Mortgage in Canada

Variable vs Fixed Mortgage in Canada (2026): The Break-Even Math, Worked in Full

Short answer: A fixed rate locks your rate and your payment for the term. A variable rate moves with your lender's prime rate, which follows the Bank of Canada. On a $400,000 mortgage with a 25-year amortization, a 6.50 percent variable rate needs four quarter-point cuts to match a 5.50 percent fixed rate. Over a five-year term the fixed rate wins by $24,993.83 if the variable rate never falls, and still wins by $3,260.57 if it falls to 5.50 percent in the first year. The variable rate only wins the term if rates fall to 4.50 percent inside two years. Run your own rates on the Variable vs Fixed Break-Even Calculator as you read.

By Finance Editorial Desk | November 8, 2026

Educational only, not mortgage advice. The rates in section 1 are the published figures for November 8, 2026, named in the sources section. Every other dollar figure is a labeled hypothetical worked example, computed with the same monthly-compounding payment formula the calculator uses. A Canadian fixed mortgage compounds semi-annually, not monthly, and section 2 prices that difference. Your lender's quote, contract, and payout statement are the authoritative figures for your mortgage.

The decision in 7 steps

1. Write down the two offers side by side: the fixed rate and the variable rate, each with its term.
2. Count the gap in quarter-point cuts: each 0.25 points is one Bank of Canada move.
3. Work the break-even: how many cuts before the variable rate matches the fixed rate.
4. Price the five-year term, not the full amortization: interest paid plus balance left at renewal, under four rate paths.
5. Price breaking each one mid-term: three months interest on the variable rate, the interest rate differential on the fixed rate.
6. Test your budget at the stress-test rate, contract rate plus 2 points, not at today's payment.
7. Pick the one whose worst case you can live with, not the one whose best case looks cheapest.

1. Where rates sit now

The Bank of Canada raised its policy rate by 0.25 points to 2.50 percent on October 28, 2026. It was the first increase since July 2023, and it ended seven straight holds at 2.25 percent. Before that, the Bank cut nine times between June 2024 and October 2025, taking the rate from 5.00 percent down to 2.25 percent. The Bank Rate is now 2.75 percent and the deposit rate 2.45 percent. The next decision is December 9, 2026, and the Bank said there could be a need to raise the rate further while it proceeds carefully.

The big banks moved prime the next day. Prime is 4.70 percent at TD, RBC, Scotiabank, BMO, CIBC, and National Bank, effective October 29, 2026, up from 4.45 percent. TD posts a separate mortgage prime of 4.85 percent for its variable-rate mortgage products. Prime usually sits 2.20 points above the overnight rate, and it still does.

Two things in that table decide the choice right now. First, the gap between the cheapest fixed and the cheapest variable is 0.75 points, or three quarter-point moves. Second, the Bank just hiked, and said more hikes could come. A variable borrower starts cheaper and pays more the moment the Bank moves again.

2. How a fixed rate works

A fixed rate stays put for the whole term. Sign a five-year fixed at 4.44 percent and you pay 4.44 percent for all five years, whatever the Bank of Canada does in the meantime. Your payment does not change, your interest split does not change, and your balance at renewal is knowable on the day you sign.

Fixed rates are priced off the bond market, not off the Bank of Canada. Lenders price a five-year fixed mortgage off the five-year Government of Canada bond yield plus a spread, adjusted for your credit and down payment. That is why the October 28 hike did not push fixed rates up: the policy rate rose a quarter point while the five-year yield actually fell, from 3.68 percent on September 28 to about 3.51 percent on October 30. Fixed rates move when investors change their view of where rates are headed over the next several years, not when the Bank moves today.

A term is not an amortization. A typical arrangement is a five-year term inside a 25-year amortization: you sign five separate contracts over the life of one debt. The rate is locked for the term only. At renewal you take whatever rate exists then, on the balance that is left. Section 6 prices exactly that five-year window, because it is the only window either rate actually controls.

What you pay for with a fixed rate is certainty. The costs are the premium (fixed usually starts higher than variable), no benefit if rates fall during the term, and a penalty to break that can run large when rates have dropped since you signed. Section 8 prices that penalty.

One compounding note, because it changes the numbers by a few dollars a month. A Canadian fixed mortgage compounds semi-annually by law. The calculator on this site, and every worked example in this guide, use monthly compounding instead, so the guide's figures match the calculator's figures exactly. On a $400,000 mortgage at 5.50 percent with a 25-year amortization, monthly compounding gives a payment of $2,456.35 and semi-annual compounding gives $2,441.57, a difference of $14.78 a month. Your lender's payment will sit on the semi-annual side of that gap. The comparisons in this guide are unaffected, because the same formula is used on both sides.

3. How a variable rate works

A variable rate is priced as a discount from, or a premium over, your lender's prime rate. If prime is 4.70 percent and your rate is prime minus 1.01 percent, you pay 3.69 percent. When the Bank of Canada changes its policy rate, the banks move prime within days, and your rate moves with it. The October 28 hike raised every variable borrower's rate by a quarter point the next day.

There are two versions, and they behave very differently when rates rise.

Adjustable payment. Your payment changes when the rate changes. A cut drops your payment the next month; a hike raises it. The effect is immediate and visible, and your amortization stays on schedule because the payment is re-computed over the time that is left. The five-year paths in section 6 use this version.

Fixed payment. Your payment stays the same and the split between interest and principal moves instead. A cut sends more of each payment to principal; a hike sends more to interest. This sounds like the safer version. It is not. If rates rise far enough, your whole payment can go to interest, a point called the trigger rate. Past it, none of your payment pays down principal, and the balance can grow while you make every payment on time.

The trigger rate is easy to price for a given payment. Take a $400,000 mortgage with a payment of $2,700.83, the payment at 6.50 percent. Monthly interest equals the payment when the rate reaches about 8.10 percent. At 9 percent, one month of interest is $3,000, which is $299.17 more than the payment, so the balance grows by $299.17 that month even though the payment was made. The Financial Consumer Agency of Canada is direct about this risk: if you hold a fixed-payment variable mortgage and rates have moved, contact your lender early rather than waiting for renewal to show you the damage.

What you get with a variable rate is a usually lower starting rate, a lower interest cost as soon as rates fall, a penalty to break that is usually only three months interest, and the option to convert to a fixed rate later. The risk is the payment itself. Between June 2024 and October 2025, variable borrowers watched nine cuts take their rate down. On October 28, 2026, the direction reversed.

4. The hybrid option

A hybrid, or combination, mortgage splits the balance, part fixed and part variable. It softens both directions: the fixed part holds steady while the variable part moves. Each part keeps its own penalty rule, so breaking a hybrid means pricing two penalties, not one. The Financial Consumer Agency of Canada lists fixed, variable, and hybrid as the three main rate types. A hybrid suits a borrower who wants some protection from hikes and some benefit from cuts, and who is willing to manage two sets of terms.

5. Worked example A: the calculator's own numbers

The calculator opens with a $400,000 mortgage, a 25-year amortization, a 6.50 percent variable rate, and a 5.50 percent fixed rate, with each Bank of Canada cut worth 0.25 points. Those are labeled hypothetical inputs, not a quote. Here is what they produce, using the calculator's monthly-compounding payment formula.

Fixed is cheaper today by $244.48 a month, and by $73,343.60 of interest if both rates somehow held for the full 25 years. Neither rate will hold for 25 years. The total-interest column is the calculator's arithmetic, not a forecast, and section 6 replaces it with the five-year comparison that matters.

The break-even question is how many cuts the variable rate needs to match the fixed rate. The gap is 1.00 point, and each cut is 0.25 points, so the answer is four cuts: 6.50 to 6.25, to 6.00, to 5.75, to 5.50. Each cut saves $62.15 a month on this balance at the start.

Matching the fixed rate is not the same as beating it. At four cuts the payments are equal, but the variable borrower already paid more interest in the months before the cuts arrived. That is why the five-year table in the next section still favours the fixed rate even on the path where the variable rate falls to 5.50 percent in the first year.

6. Worked example B: the five-year term, four paths

A term lasts five years, so the comparison that counts prices five years. Each path below is a labeled hypothetical on the same $400,000 mortgage with a 25-year amortization. The variable paths use an adjustable payment, re-computed over the remaining amortization each time the rate changes. The last column, interest paid plus balance left at renewal, is the total cost of the five years: the cash that went to interest plus the debt still owed.

Read the table from the fixed rate's side. If the variable rate never falls, the fixed rate wins the term by $24,993.83. If the variable rate falls a quarter point each quarter of the first year, landing at 5.50 percent, the fixed rate still wins, by $3,260.57. Falling to the fixed rate is not enough, because the early months at 6.50 and 6.25 percent already cost more than the later months at 5.50 percent save. The variable rate only wins the term on the fourth path, falling to 4.50 percent inside two years, where it wins by $13,543.21.

That is the shape of the decision. The variable rate needs deep cuts, early in the term, to win. Shallow cuts, or late cuts, leave the fixed rate ahead. And the cuts have to arrive while you still hold the mortgage: every month at the higher rate is money the later cuts cannot take back.

7. Worked example C: today's rates

The calculator's defaults are a teaching example. Here is the same math on the rates a borrower actually faces this week: the lowest advertised five-year fixed at 4.44 percent and the lowest advertised five-year variable at 3.69 percent, on a $550,000 mortgage with a 25-year amortization. Both figures are the October 31, 2026 advertised rates from Ratehub's table, not offers, and they will have moved by the time you read this.

The variable rate starts $228.59 a month cheaper, and 0.75 points below the fixed rate. That is three quarter-point cuts of headroom: the variable rate can rise three times before it even reaches the fixed rate. The five-year table shows how much headroom that really buys.

If rates hold or fall, the variable rate wins the term by $26,333.37. If rates rise one point in the first year, taking the variable rate to 4.69 percent, the fixed rate wins by $4,102.55. If rates rise two points over two years, to 5.69 percent, the fixed rate wins by $26,996.01.

The Bank of Canada just raised its rate and said more hikes could come. That does not make the fixed rate the right pick on its own. It makes the one-point path in this table the one to weigh most carefully, because it is the path the Bank's own words point toward. Ask whether your budget survives the 4.69 percent payment of $3,116.69 a month, and whether it survives the 5.69 percent payment of $3,440.17. If the answer to the second is no, the fixed rate is buying something real for its $228.59 a month.

8. The penalty difference, priced

The rate choice is also a flexibility choice, and the penalty is where it shows. Break a closed mortgage mid-term and the charge depends on the rate type: usually three months interest on a variable rate, and the greater of three months interest and the interest rate differential on a fixed rate. An open mortgage usually carries no penalty at all, at the cost of a higher rate while you hold it.

Take the $400,000 mortgage from example A, two years into a five-year term at 5.50 percent. The balance after 24 months is $384,232.35. Break it then, with a comparison rate of 4.00 percent and 36 months left:

The fixed-rate penalty is $11,046.68 larger. That gap is the price of the fixed rate's certainty if you move, separate, upsize, or refinance before the term ends. The Financial Consumer Agency of Canada works the same comparison on a $200,000 balance at 6 percent with 36 months left against a 4 percent comparison rate: three months interest of about $3,000 against an IRD of about $12,000.

Two warnings sit under those numbers. First, the IRD method varies by lender. Most big banks compare your rate with today's posted rate minus the discount you were given, which makes the IRD larger than a comparison against today's discounted rate. Your contract states the method, and the payout statement gives the exact figure. Second, the penalty shrinks as the term runs down, and disappears at renewal. The Mortgage Penalty in Canada guide works the full calculation, and the Canadian Mortgage Penalty Calculator prices your own balance and rates.

9. Converting, blending, and the renewal escape hatch

A variable rate carries an escape hatch the fixed rate does not: conversion. Most lenders let you convert a variable mortgage to a fixed rate at their current fixed rate for the remaining term or longer, usually with no penalty. The catch is the rate on offer is the lender's rate, not the best rate in the market, and converting locks you into that lender for the new term. It is a real option, and it is worth asking your lender to put its conversion terms in writing before you sign the variable rate.

Blend and extend is the fixed-rate borrower's version. Many lenders will blend your existing rate with the current one and extend the term, with no prepayment penalty, when you want a different rate mid-term. Administrative fees may still apply. The Mortgage Renewal guide covers both moves in full, with the payment shock math for the renewal itself.

Renewal is the cheapest exit of all. At the end of the term there is no penalty, and your lender must send a renewal statement at least 21 days before the term ends. Since November 21, 2024, OSFI does not expect federally regulated lenders to stress-test an uninsured straight switch to another lender, though a lender may still choose to. The term you pick should match your horizon: a five-year fixed rate is a five-year commitment to that lender's penalty schedule, and a borrower who expects to move in three years is buying certainty for years they will not use.

10. The stress test

Federally regulated lenders must check that you could still afford the payments at the higher of 5.25 percent or your contract rate plus 2 points. That qualifying rate is the lender's view of your worst case, and it is a better budget test than today's payment.

On the $550,000 mortgage from example C, the qualifying rates are 6.44 percent for the 4.44 percent fixed offer and 5.69 percent for the 3.69 percent variable offer. The qualifying payments are $3,693.05 and $3,440.17 a month, a difference of $252.88. Lenders also apply two debt ratios: gross debt service, housing costs within 39 percent of gross household income, and total debt service, housing plus all other debt payments within 44 percent. The Mortgage Stress Test guide works the full calculation and the straight-switch exemption.

Use the qualifying payment as your budget test, not the advertised one. If the 6.44 percent payment of $3,693.05 fits your budget, the variable rate's risk is a cost you can absorb. If it does not, the fixed rate's $3,038.38 payment is the figure your household can plan on, and the variable rate's $2,809.79 starting payment is a number you cannot count on keeping.

11. Who should pick which

There is no universal answer, because the right pick depends on your budget, your horizon, and your tolerance for a payment that moves. Five profiles cover most borrowers.

Tight budget, no slack. Pick fixed. If a payment increase of one or two points would cause real strain, the fixed rate removes the uncertainty for the length of the term, and the premium is the price of that removal. This is the profile the stress test is built for.

Likely to move or refinance inside the term. Pick variable. The penalty gap in section 8 is the deciding figure: $6,243.78 against $17,290.46 on the worked example. A borrower who expects a move, a separation, a larger home, or a refinance to reach equity is paying for flexibility they will use.

Can absorb a two-point rise and wants the cheaper start. Pick variable. The one-point and two-point paths in section 7 are survivable for this borrower, and the starting saving of $228.59 a month is real money while rates hold. Keep the difference in a separate account rather than spending it, so the cushion is there when the rate moves.

Sleep matters more than the spread. Pick fixed. The spread today is 0.75 points. If knowing the payment for five years is worth $228.59 a month to you, that is a legitimate purchase, not a mistake. CMHC's 2025 Mortgage Consumer Survey found 62 percent of recent buyers chose a fixed rate and 25 percent a variable rate, so the fixed pick is the common one.

Short horizon. Match the term to the horizon before you argue about the rate type. A three-year fixed rate can cost less in penalties than a five-year fixed rate for a borrower who will move in three years, and a variable rate with a conversion option can cover the same ground. The term decision sits above the rate decision.

12. Mistakes to avoid

• Comparing the posted fixed rate with the discounted variable rate. Posted rates are list prices. Compare the discounted fixed rate you were actually offered with the discounted variable rate, on the same term and amortization.
• Judging on the first month's payment. The first payment is the cheapest fact about a variable rate. Price the five-year term under the one-point and two-point rise paths, the way section 7 does.
• Forgetting the penalty. A fixed rate that looks cheaper by $200 a month can cost $11,046.68 more to break two years in. If your horizon is shorter than your term, the penalty is part of the rate.
• Holding a fixed-payment variable mortgage without knowing the trigger rate. Ask your lender for the rate at which your payment stops covering interest, and what happens then: a higher payment, a lump sum, or a longer amortization. Get it in writing.
• Assuming prime moves with the Bank on the same day. Prime usually follows within days, and TD's mortgage prime is 0.15 points above its standard prime. Your contract names your lender's prime, not the Bank's policy rate.
• Locking a term longer than your plans. Five years of certainty is five years of penalty exposure. If a move is likely in three years, a shorter term or a variable rate costs less to leave.
• Budgeting to the advertised payment. Budget to the qualifying payment from the stress test. The advertised payment is the best case; the qualifying payment is the one the lender already tested you against.

13. Questions, answered

How many rate cuts does a variable rate need to beat a fixed rate? On the calculator's $400,000 example, four quarter-point cuts take a 6.50 percent variable rate to 5.50 percent. Each cut saves $62.15 a month at the start. Matching the fixed rate is not beating it: the five-year table shows the fixed rate still wins by $3,260.57 even when the variable rate falls to 5.50 percent in the first year.

Is a variable rate cheaper than a fixed rate right now? At the lowest advertised rates on October 31, 2026, yes at the start: 3.69 percent variable against 4.44 percent fixed, a $228.59 a month gap on $550,000. Whether it stays cheaper depends on the Bank of Canada, which raised its rate on October 28 and said more hikes could come. One point of rises in the first year erases the advantage.

What happens to my variable mortgage if rates rise? On an adjustable-payment variable mortgage, your payment rises with prime. On a fixed-payment variable mortgage, your payment stays the same and less of it goes to principal; past the trigger rate, none of it does, and the balance can grow. Section 3 prices the trigger rate at about 8.10 percent for a $400,000 mortgage with a $2,700.83 payment.

Can I switch from variable to fixed later? Usually yes. Most lenders let you convert a variable mortgage to a fixed rate at their current fixed rate, usually with no penalty. The conversion rate is the lender's rate, not the market's best, and converting locks you to that lender for the new term.

Which is better for a first-time buyer? The one whose worst case fits your budget. CMHC's 2025 survey found 62 percent of recent buyers chose fixed and 25 percent variable. A first-time buyer with a tight budget and no payment cushion is the profile the fixed rate is built for; a first-time buyer with room to absorb a two-point rise can take the variable rate's cheaper start.

Does the stress test treat fixed and variable differently? Yes. You qualify at the higher of 5.25 percent or your contract rate plus 2 points, so a lower contract rate gives a lower qualifying rate. On $550,000, the qualifying payment is $3,693.05 for the 4.44 percent fixed offer and $3,440.17 for the 3.69 percent variable offer.

What is the penalty to break each one? Usually three months interest on a closed variable mortgage, and the greater of three months interest and the interest rate differential on a closed fixed mortgage. On the worked example in section 8, breaking two years in costs $6,243.78 on the variable rate and $17,290.46 on the fixed rate.

Should I pick the rate or the term first? The term. A five-year term is a five-year commitment to that lender's penalty schedule, and the rate only controls the term. Match the term to how long you will actually hold the mortgage, then pick the rate type inside it.

14. Related reading

• Variable vs Fixed Break-Even Calculator - enter your balance and both rates, and get the cuts needed plus the rate-cut scenario table.
• Mortgage Penalty in Canada - three months interest vs the interest rate differential, worked in full on $200,000 and $420,000 examples.
• Canadian Mortgage Penalty Calculator - price the break penalty for your own balance, rates, and months left.
• Mortgage Renewal in Canada - the payment shock math and your options before you sign.
• Mortgage Refinance Break-Even (Canada) - the full break-even test for refinancing, including adding the penalty to the new balance.
• Mortgage Stress Test Guide - the qualifying rate, the 39 and 44 percent debt ratios, and the straight-switch exemption.
• Canadian Mortgages Guide - how Canadian mortgage rates compound, and how terms, amortization, and payments fit together.
• CMHC Mortgage Insurance in Canada - premium math and the $1.5 million cap for buyers under 20 percent down.
• Mortgage Renewal Shock Calculator - model your own renewal payment at the new rate.
• Principal Paydown Calculator - model extra payments against the balance, whichever rate type you hold.

15. Sources

• Bank of Canada, "Bank of Canada raises the policy rate by 25 basis points to 2 1/2%", October 28, 2026: the policy rate raised to 2.50 percent, the Bank Rate at 2.75 percent and the deposit rate at 2.45 percent, the first increase since July 2023, the next decision December 9, 2026, and the statement that there could be a need to increase the policy rate further while Governing Council proceeds carefully (bankofcanada.ca).
• Bank of Canada, policy interest rate history: nine cuts between June 2024 and October 2025, taking the rate from 5.00 percent to 2.25 percent, then seven holds before the October 28, 2026 increase (bankofcanada.ca).
• Bank of Canada, posted rates and bond yields: the five-year Government of Canada bond yield about 3.51 percent on October 30, 2026, down from 3.68 percent on September 28 (bankofcanada.ca).
• Big Six banks, prime rate announcements: prime at 4.70 percent at TD, RBC, Scotiabank, BMO, CIBC, and National Bank, effective October 29, 2026, up from 4.45 percent; TD mortgage prime at 4.85 percent (bank announcements, October 28, 2026).
• Ratehub.ca, best mortgage rates table, October 31, 2026: lowest advertised five-year fixed 4.44 percent and lowest advertised five-year variable 3.69 percent, prime minus 1.01 percent.
• Bank of Canada data, average rates on new uninsured mortgages, August 2026: 4.58 percent for fixed terms of five years or more and 3.90 percent variable.
• Financial Consumer Agency of Canada, "Choosing a mortgage that's right for you" (page updated October 15, 2025): fixed, variable, and hybrid as the three main rate types; fixed rates usually higher than variable at signing because you pay for certainty; the trigger-rate warning for fixed-payment variable mortgages; the stress test at the higher of 5.25 percent or the contract rate plus 2 points; and the gross debt service ratio of 39 percent and total debt service ratio of 44 percent (canada.ca, Financial Consumer Agency of Canada).
• Financial Consumer Agency of Canada, "Prepayment penalties": closed variable rate mortgages usually carry three months interest; closed fixed rate mortgages carry the greater of three months interest and the interest rate differential; the worked example of a $200,000 balance at 6 percent with 36 months left against a current 4 percent rate, giving about $3,000 of three months interest and about $12,000 of IRD; and the five-year rule capping the charge at three months interest on terms longer than five years once five years have passed (canada.ca, Financial Consumer Agency of Canada).
• Canada Mortgage and Housing Corporation, 2025 Mortgage Consumer Survey: 62 percent of recent buyers chose a fixed rate and 25 percent a variable rate.
• Office of the Superintendent of Financial Institutions, November 21, 2024: federally regulated lenders are not expected to apply the stress test to an uninsured straight switch at renewal.