Fixed vs Variable
Mortgage Calculator Canada
Compare total interest, monthly payments, and break penalty costs for fixed vs variable rate mortgages. Choose a rate scenario to model what happens if rates rise or fall.
Mortgage details
Rate comparison is illustrative — actual rates vary by lender, credit score, and market conditions. Variable rates move with prime rate which can change at any Bank of Canada announcement. Not financial advice. Terms →
A fixed rate locks in your payment for the term regardless of what prime rate does. Historically, variable rate mortgages have been cheaper on average over the long run — but the "on average" matters. Fixed is for people who cannot absorb payment increases or prefer predictability.
Variable rates track the Bank of Canada's overnight rate. At historically low rates (2020-2021), variable was dramatically cheaper. At current rates (prime 5.20%), the spread between fixed and variable is narrow. If rates rise, your variable payment increases — sometimes significantly.
Fixed-rate penalties use the Interest Rate Differential (IRD) formula, which can be $15,000–$40,000+ on a $500K mortgage. Variable penalties are just 3 months of interest — typically $3,000–$7,000. If there's any chance you'll break the mortgage early, variable has a major advantage.
Banks post higher "posted rates" for IRD calculations even though you didn't pay the posted rate — you got a discount. This inflates the IRD penalty. Some lenders (monoline lenders, credit unions) use fairer penalty calculations. Always ask for the penalty formula before signing.
What the historical data actually shows
The fixed vs variable debate gets treated like a coin flip, but decades of Canadian mortgage data lean fairly consistently in one direction — though that doesn't mean variable is automatically right for everyone.
Variable has historically won more often than not
Academic studies on Canadian mortgage rates, most notably research from York University, found that variable rate mortgages outperformed fixed roughly 88% of the time over multi-decade periods. This is because lenders price fixed rates with a built-in premium to compensate themselves for taking on the interest rate risk — you're paying extra, in effect, for certainty. Over long enough timeframes, that premium usually costs more than the variable rate's fluctuations do.
Why "usually wins" isn't the same as "always wins"
The years that break the pattern tend to be sharp, fast rate-hiking cycles — exactly what happened in 2022 and 2023, when the Bank of Canada raised rates faster than at almost any point in modern history. Anyone who locked into a low fixed rate just before that cycle started came out significantly ahead of someone on variable. Historical averages don't protect you from being unlucky with timing, which is the real risk variable-rate borrowers are taking on.
The psychological cost rarely gets factored in
Even when variable wins mathematically, it requires tolerating monthly payment uncertainty for years at a time. Some borrowers genuinely lose sleep over a floating rate regardless of what the spreadsheet says, and that stress has a real cost even if it doesn't show up in a savings comparison. A fixed rate that lets you sleep at night isn't a financially irrational choice — it's just pricing in something a calculator can't.
Hybrid mortgages — splitting the difference
Some lenders offer hybrid or combination mortgages that split your balance between fixed and variable portions, each with separate terms. This won't outperform a pure variable mortgage in a falling-rate environment, but it caps your exposure compared to going fully variable, and is worth asking about if the all-or-nothing choice feels too binary for your risk tolerance.
Frequently asked questions
Is it better to get fixed or variable in Canada in 2026?
With prime at 5.20% and typical 5-year fixed at 5.19%, the spread is nearly zero — historically unusual. Economists generally expect rates to continue gradual decline. In this environment, variable mortgages offer potential savings if rates fall as expected, plus lower break penalties. Fixed remains the better choice for buyers who cannot absorb payment increases.
How is the IRD penalty calculated in Canada?
IRD = (your contract rate − current comparable rate) × remaining balance × remaining term in years. The "current comparable rate" uses the lender's posted rates, not discounted rates, which inflates the penalty significantly. A $500,000 mortgage at 5.5% with 3 years remaining, where the comparable 3-year rate is 4.0%, faces an IRD of roughly $22,500 — versus only $6,250 for 3 months interest.
Can I switch from variable to fixed mid-term?
Yes — most lenders allow converting to a fixed rate at any time during your term, usually at the current posted fixed rate for the remaining term. No penalty applies. This optionality is one of variable rate's underappreciated advantages.