Fixed-Rate vs. Variable-Rate Mortgages: Which is Better for Refinancing?

There’s no denying that the state of the economy over the past year has made everyone a little more cautious. Rising interest rates and inflation have driven mortgage payments higher for some while the cost of living is a burden shared by us all.

With that, it is essential for Canadians to cross their t’s and dot their i’s before making any financial decisions at this time. This includes choosing between a fixed or variable rate mortgage if you’re refinancing. Why is this important? Depending on which route you choose could potentially save thousands of dollars.

At this time, many homeowners are considering refinancing as a means to relieve some of their financial pressures. Refinancing can help in a few ways. For one, with rising rates, locking in a new rate could potentially shield homeowners from higher rates in the future, especially if they currently have a variable rate mortgage. A refinance also gives homeowners the opportunity to access equity in their home, which can be used to pay off lingering debt or any necessary home renovations. In other cases, a refinance might be a strategy to extend your mortgage term and reduce monthly payments to better grapple with the rising cost of living.

What you need to know about your options

Fixed-rate Variable-rate
  • Locks in your rate for a set term (usually 1-5 years)
  • Stable, consistent monthly mortgage payments over the entire term, though typically at a premium rate
  • Predictable payments can help you budget or manage your finances
  • Not as flexible - generally not possible to switch to a variable rate
  • You can still break your mortgage but this may incur higher penalties known as the interest rate differential
  • You won’t be able to take advantage of lower rates if the rates do decline during your set term 


  • Higher-risk as the interest rate fluctuates depending on the prime rate set by the Bank of Canada
  • Typically the initial rates are lower than fixed-rate mortgages and in typical market conditions, the rate averages out to less than fixed 
  • Penalties for breaking a variable rate mortgage are generally lower
  • More flexible - you can potentially switch to a fixed rate without breaking your mortgage
  • Unpredictable - while your payments will remain the same, the amount paid towards the principal vs. the interest will vary depending on the state of the economy


Should you go with a fixed or variable rate?

No doubt one of the biggest questions when it comes to refinancing, each option carries with it a number of pros and cons. While fixed-rates may be a bit higher than variable, they offer peace of mind as your payments are locked in and unchanging throughout your set term. Variable rates on the other hand, are inherently riskier as they depend on Bank of Canada’s decisions.

Due to the record number of interest rate hikes by the Bank of Canada over the past two years, many Canadians nowadays lean towards fixed-rate mortgages. While we can’t say for sure when these rate hikes will end, in typical market conditions, variable-rate mortgages are favoured in that they offer more flexibility and can potentially save mortgage owners more money due to their lower rates.

What are some of our pro tips to help you decide?


Best for:

  • If your tolerance for risk is low and you feel more comfortable with knowing exactly what you’ll be paying each month until your mortgage term ends
  • If you’re a first-time homebuyer
  • If you want to secure a rate for the next few years and avoid potential increases


Best for:

  • If your tolerance for risk is high - and you want the potential upside of saving more money if interest rates decrease in the future
  • If you’ve owned a home before 
  • If you’re able to budget for potential rate hikes and are comfortable with the economic volatility


Ultimately, there’s no correct answer and it just comes down to your personal choice. Considering the prevailing trend in Canada in 2023, we know that this may be a tough decision due to the lingering inflation pushing up all the rates. At Homewise, we help you explore your options and find a rate that will save you money so you can reach your financial goals. Reach out to our expert Mortgage Advisors now.