Whether you’re a first timer or an experienced home buyer, it’s always important to understand your mortgage options and make an informed decision. When it comes to choosing between a fixed or variable rate mortgage, many home buyers are often unsure which one is right for them. In order to choose the right mortgage, it’s always helpful to get clear on the details and weigh out the pros and cons – just like we would for any important decision we make in life. If you’re trying to choose between a fixed or variable rate mortgage, here’s a breakdown of what each option entails, as well as some tips to help you make the best choice. 

What is a fixed rate mortgage?

A fixed rate mortgage is when your principal (the size of your mortgage) and the interest rate stays the same over the course of your mortgage term. For example, if you have an interest rate of 2.3% on a five-year fixed mortgage, the rate will be the exact same throughout all five years and your payments and the amount of principal you pay down won’t change either. One of the reasons many home buyers gravitate toward a fixed rate mortgage is because of its cost certainty. If you’re a first-time home buyer, understanding all of the fees associated with owning a home may not come easy. For this reason, roughly 80% of first timers prefer a fixed rate because there is full transparency on the price of their monthly mortgage payments


  • If you’re a cost-conscious home buyer, a fixed rate mortgage allows you to set a clear budget with the assurance that your payments won’t fluctuate over the mortgage term
  • Payments are consistent and it offers more stability when it comes to budgeting and planning for the future


  • If you break your mortgage, it could end up being more expensive, as fixed rate penalties are often much higher compared to variable rate penalties
  • Tip: certain lenders have larger penalties than others for fixed rate mortgages. It’s important to consult a Mortgage Advisor about the potential penalties as the difference in expenses can amount to tens of thousands of dollars.

What is a variable rate mortgage?

A variable rate mortgage is a loan with a rate that can go up or down over the mortgage term, based on market conditions. While your payments stay the same with most lenders (some lenders have fluctuating payments), the amount of the mortgage paid off will increase or decrease based on how the prime rate changes (the prime rate is the rate set by the Bank of Canada). For example, if you have a 2.4% five-year variable rate mortgage, the rate may drop to 2.1% in the last two years of your mortgage term. In this case, your monthly payments will stay the same, however, the amount of mortgage principal that you pay off will increase because of the rate decrease.


  • Variable rate mortgages offer more cost savings because variable rates typically start lower. This is especially true given the decline in interest rates over the last 10 to 15 years
  • The fee to port your mortgage is less compared to a fixed rate mortgage


  • Cost savings aren’t set in stone as rates can increase at any time
  • Home buyers can end up paying more than they initially budgeted for with variable rate mortgages if rates go up, which is why this option is recommended to those who are able to handle that type of risk

Tip: if you are unsure that you will be at your home for the duration of your full five-year term, a variable rate mortgage is often a great choice. Not only do rates typically start lower, the penalty to break your mortgage early is usually much smaller than a fixed rate mortgage as it is based on three months of interest payments. Also, most variable rate mortgages allow borrowers to switch over to a fixed rate mortgage at any time. 

Before making a decision, it's wise to consider where you are today and where you want to be in the next few years. Taking the time to understand both of these options and how they relate to your financial situation and future goals is essential. Getting help from an expert Mortgage Advisor like those on our team at Homewise is also a great way to get insight on the best options available in the marketplace. If you’re ready to begin the process, start by getting pre-approved in just five minutes and one of our mortgage advisors will guide you through the process to help you make the right decision. 

Watch this video from our MORTGAGE ACADEMY series to learn more about fixed rate and variable rate mortgages.