Fixed vs Variable Mortgage in 2026: A Decision Framework
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In Canada in 2026, pick a fixed rate when the payment must stay put, and a variable rate when you can absorb a prime move. The Bank of Canada overnight target is 2.25%, held September 2, 2026; the next decision is October 28, 2026. Its October 14, 2026 weekly series shows prime at 4.45%. See the real estate hub.
- Choose fixed if a higher payment would hit spending you cannot cut, or you are unlikely to sell, refinance, or port before the term ends.
- Choose variable if you can carry a higher payment, you may break the term, and the commitment charges three months' interest to leave. The rate is a contract with prime, not a forecast of a cut.
- On October 14, 2026, prime was 4.45% and the posted 5-year conventional mortgage rate was 6.19%, up from 6.09% through September 30.
- That 6.19% is a sticker. The discount off it is what makes an interest-rate differential large if you break a fixed term while your rate is above the comparison rate.
- On an illustrative $500,000 loan over 25 years, an assumed move from 4.50% to 5.50% adds about $285 a month. Those rates are not offers.
- The next announcement is October 28, 2026, with a Monetary Policy Report. On September 2 the Bank said upside inflation risks had increased and that it is prepared to adjust.
What is the difference between a fixed and a variable mortgage in Canada?
A fixed mortgage locks the rate for the term. A variable mortgage is that lender's prime plus or minus a spread, so the rate moves when prime moves. The Financial Consumer Agency of Canada says a fixed rate is usually higher than a variable rate, and it describes two variable payment types: adjustable payments, which change with the rate, and fixed payments, where more of the same payment goes to interest if the rate rises.
The spread and the payment type are in the commitment. This page does not invent a spread. A fixed-payment variable can hit a trigger point. An adjustable payment avoids that by changing the amount you pay.
| Fixed | Variable, adjustable payment | Variable, fixed payment | |
|---|---|---|---|
| Rate | Set for the term. | Prime plus or minus the spread. | Same prime-based pricing. |
| Payment | Stays on the schedule you signed. | Recalculated when prime changes. | Stays put. A higher rate lengthens the amortization. |
| What you give up | A usually cheaper exit. The starting rate is usually higher. | A payment that cannot rise. | A clear amortization, once you pass the trigger rate. |
| Qualifying rate | Greater of contract plus 2 points or 5.25%. | Same test, on this contract rate. | Same test, on this contract rate. |
| Closed-term penalty | Usually the higher of three months' interest and an interest-rate differential. | Often three months' interest. TD describes its closed variable that way. | Often three months' interest. The payment type does not set the penalty. Read the clause. |
The posted 5-year on October 14, 2026 was 6.19%, a sticker, not the commitment. The discount off a posted rate feeds many fixed-rate penalties. A hybrid splits the balance. FCAC says the portions can have different terms, can be harder to transfer, and each still has its own penalty. The cluster hub is the Canadian mortgage guide.
What are the key rates in October 2026?
On October 16, 2026 the backdrop is an overnight target of 2.25%, prime of 4.45%, a posted 5-year conventional rate of 6.19%, and a 5.25% floor inside the minimum qualifying rate. None of those is the discounted rate in a commitment.
The Bank of Canada held 2.25% on September 2, 2026, the seventh straight hold since the October 29, 2025 cut. The statement said CPI had been around 3%, mainly because of gasoline, that upside risks to inflation had increased, and that the Bank is prepared to adjust policy. The next decision is October 28, 2026, with a Monetary Policy Report. The one after that is December 9, 2026.
Prime on that October 14 series was 4.45%, and a variable contract is usually prime plus or minus a spread you negotiate. The posted 5-year was 6.19% on October 7 and October 14, up from 6.09% through September 30. That posted rate is where many interest-rate differentials start.
October 28, 2026 is a scheduled decision with a Monetary Policy Report, and December 9, 2026 is the one after it. The announcement can move the overnight target. It does not print the discount in your commitment.
How much does one point on prime change the payment?
On an example $500,000 loan amortized over 25 years, one point from an assumed 4.50% to an assumed 5.50% adds about $285 a month, about $3,420 a year. The rates are assumptions, not offers. If you cannot find $285, and the contract will not lengthen the amortization for you, you are choosing a fixed payment.
Canadian residential mortgages compound semi-annually, not in advance. The monthly rate here is (1 + annual rate / 2) raised to 1/6, minus 1. Every row uses the same balance and the same 25 years.
| Assumed rate | Monthly payment | What the row is |
|---|---|---|
| 3.50% | $2,496 | One point below the 4.50% illustration. |
| 3.95% | $2,617 | Prime of 4.45% minus an assumed 0.50 spread. |
| 4.50% | $2,767 | The fixed-rate illustration used on this page. |
| 5.50% | $3,052 | One point above 4.50%. About $285 more than $2,767. |
| 6.50% | $3,349 | Qualifying payment for a 4.50% contract. Not the bill, unless the contract rate is 6.50%. |
The $3,349 row is the qualifying payment on the 4.50% illustration, not the bill. The 3.95% row, prime minus an assumed half point, is the variable start in the five-year comparison.
Which costs less over a 5-year term?
In this example, fixed at an assumed 4.50% costs $105,024 of interest over five years. Variable at an assumed 3.95%, with the payment recalculated each year, costs $91,884 if prime stays flat, which is $13,140 less. The variable path costs more once prime rises about 0.7 points from year 2 and stays there. These are assumed rates on an adjustable payment, not a forecast and not an offer.
Same $500,000 and 25 years, compounded semi-annually. The spread stays an assumed 0.50 under the 4.45% prime, so year 1 is 3.95%, and the payment is recalculated yearly. A fixed-payment variable keeps the payment and changes the amortization instead.
Example: five-year interest on $500,000, assumed rates, not an offer
Example only. Minus 0.50 from year 2 is $82,553. Flat is $91,884, or $13,140 under fixed at $105,024. Plus 0.50 is still under fixed, at $101,245. Plus 1.00 is $110,634, and the steeper path is $124,479. Break-even is about 0.7 points from year 2. The Bank of Canada has not published that path.
A lower payment you send back to the mortgage is the prepayment versus investing choice, and it only exists if you finish the term. Leaving early replaces this chart with a penalty.
What does it cost to break a fixed vs a variable mortgage?
On a closed fixed term the penalty is usually the higher of three months' interest and an interest-rate differential (IRD). On a closed variable term it is often three months' interest. In FCAC's example, a $200,000 balance at 6% with 36 months left, against a current 36-month posted rate of 4%, produces $3,000 of three months' interest and a $12,000 IRD, so the penalty is $12,000.
FCAC says the IRD usually applies when your rate is above the comparison rate and you signed less than five years ago. TD describes a closed variable as three months' interest, and a closed fixed as the higher of that and an IRD using the posted rate for a similar term minus the discount. Your commitment controls. The method is the IRD penalty guide.
A larger discount off the posted 6.19% makes a larger IRD if posted rates fall and you leave. Ask, on the day you sign, which posted rate the IRD will use.
Illustration, not an offer. The $475,473 and $4,695 use the assumed 3.95% on $500,000 over 25 years, held for two years. The $3,000 and $12,000 are FCAC's example on a different loan. A $12,000 penalty against the $285 monthly gap takes about 42 months to earn back.
Federally regulated lenders must disclose penalties in the information box. FCAC says to use prepayment privileges first, wait for maturity, port, or shop the penalty in dollars. A saving that needs 42 months loses when the remaining term is shorter.
What is a trigger rate on a fixed-payment variable mortgage?
A trigger rate is the rate at which a fixed payment only covers interest, so nothing goes to principal. FCAC says the lender may then require higher payments, a lump sum, or a conversion to fixed. A variable contract with a fixed payment must disclose the trigger rate, and disclose that the amortization may lengthen.
Illustration, not an offer. The 3.95% is the 4.45% prime minus an assumed 0.50 spread. At the start, that $2,617 payment only covers interest at about 6.36%. Between 3.95% and 6.36%, more of the payment goes to interest and the amortization gets longer. Above 6.36%, the balance can grow. That is the negative-amortization risk FCAC describes.
Ask about an interest-rate cap and a convertibility feature. FCAC says converting usually has a fee, conditions may apply, and the new fixed rate may be higher than the one on offer that day. An adjustable payment avoids the trigger by raising the payment, which only works if you have the cash. Both types still face the qualifying test.
Does the stress test treat fixed and variable the same?
Yes. For an uninsured mortgage at a federally regulated lender, OSFI's minimum qualifying rate is the greater of the contract rate plus 2 percentage points or 5.25%, reviewed at least annually. CMHC uses that same greater-of test for insured gross and total debt service, on fixed, capped, standard variable, and adjustable mortgages. You pay the contract rate. The qualifying rate is the test.
On the 4.50% illustration you qualify at 6.50%, a payment of $3,349, and you pay $2,767. On the 3.95% illustration, contract plus 2 points is 5.95%, so the 5.25% floor is not binding. The floor binds under a 3.25% contract. A lower variable rate can qualify you for more, and it does not waive the test. The arithmetic is the stress test guide.
OSFI does not expect that prescribed rate on an uninsured straight switch at renewal when the amortization and the loan amount do not increase. The narrow edges of that exception, including the cost allowance, are the 2026 renewal guide. CMHC caps gross debt service at 39% and total debt service at 44%, both at the qualifying rate.
Since December 15, 2024, Department of Finance rules allow an insured 30-year amortization for all first-time buyers and all new builds when loan-to-value is above 80%. The insured price cap is under $1.5 million. The minimum insured down payment is 5% to $500,000 and 10% on the portion from $500,000 to $1.5 million. The rate type does not change those rules.
Do the rules differ by province?
OSFI's minimum qualifying rate binds federally regulated lenders, including the banks. A provincially regulated credit union follows its province's regulator. Insured mortgages, in any province, use the federal insured qualifying rate.
In Ontario, FSRA guidance CU0063INT does not prescribe OSFI's formula. It expects prudent gross and total debt-service limits, with appropriate stress tests. Ask the credit union, in writing, which rate it will use.
This page has not opened Quebec's Autorité des marchés financiers rules for caisses populaires, or other provinces' credit-union rules. Ask a lender that is not federally regulated which qualifying rate it uses, and whether the mortgage is insured.
How do you decide?
Choose fixed when a higher payment would hit spending you cannot cut, or when you expect to finish the term. Choose variable when you can carry a higher payment, you may break the mortgage, and the commitment shows a three-month interest penalty. Price a hybrid only after you have priced each portion.
| Your situation | Contract that matches | What you are paying for |
|---|---|---|
| A higher payment would hit spending you cannot cut, and you expect to finish the term. | Fixed. | A payment that does not move. Leaving early usually costs the higher of three months' interest and an IRD. |
| You can absorb a prime move, and a sale, transfer, or separation could end the term early. | Variable, if the penalty is three months' interest. | A smaller exit. In the example, about 0.7 points of prime from year 2 erases the five-year interest advantage. |
| You want part of the balance locked and part of it free to leave. | Hybrid: part fixed, part variable. | Two contracts. Portions may have different terms and can be harder to transfer. Each has its own penalty. |
| You want a variable rate and a payment that does not change. | Fixed-payment variable, after you have read the trigger rate. | A stable payment until the trigger. In the example, interest-only starts near 6.36%. |
The table is the same choice as the chart. The next step is to put two written offers side by side.
How do you compare two mortgage offers?
Compare two written offers on the same balance, amortization, and term, and compare the penalty and the privilege with the rate. A lower rate with a harsh interest-rate differential is a bet that you will stay the whole term.
Write the rate, the term, fixed or variable, and the discount off the posted rate. Use the same balance and amortization, or the payments are not comparable.
For a variable offer, write prime plus or minus the spread, and whether the payment is adjustable or fixed. A fixed payment needs the trigger rate before you continue.
Ask whether the charge is three months' interest, an IRD, or the higher of the two, and which posted rate the IRD uses. Ask the conversion fee as its own number.
Write the prepayment privileges and whether the mortgage is portable. The privilege is how you pay the loan down without the penalty. A port is how a sale avoids a break.
On the $500,000 illustration, one point is about $285 a month. Divide the penalty by that kind of monthly saving. A $12,000 charge needs about 42 months. A shorter remaining term means the cheaper rate loses.
This is a script, not a form the lender has to accept. Fill every blank from the commitment before you compare a single rate.
"Please confirm, in writing: the spread to prime is ____; the payment type is ____ (adjustable or fixed); the trigger rate is ____; the conversion fee is ____; the penalty formula is ____; the posted rate used in the IRD is ____; the prepayment privileges are ____; and portability is ____."
- Both offers are in writing, on the same balance and amortization.
- The spread to prime is written down for every variable offer.
- The payment type is identified as adjustable or fixed.
- The trigger rate is disclosed if the payment is fixed.
- The penalty formula and the posted rate used in the IRD are in the package.
- The conversion fee, and any conditions, are a dollar amount.
- The prepayment privileges and portability are stated.
- The qualifying rate the lender will use is stated, including on a straight switch.
What are the common mistakes?
The expensive mistakes treat the posted rate as your rate, treat the example as a forecast, or break a fixed term before dividing the penalty by the monthly saving.
- Using the 6.19% posted rate from October 14, 2026 as if it were your contract rate. It is the sticker.
- Treating the five-year chart as the Bank of Canada's path. The September 2 statement held 2.25% and said the Bank is prepared to adjust. It did not publish your prime path.
- Signing a fixed-payment variable without the trigger rate. In the example, interest-only starts near 6.36%.
- Breaking a fixed term to save one point before dividing the penalty by the monthly gap. A $12,000 charge against $285 a month needs about 42 months.
- Assuming OSFI's formula is the rule at every credit union. It binds federally regulated lenders. Ontario's FSRA guidance does not prescribe it. Other provinces are not copied here.
- Waiting for October 28, 2026 as if the announcement will print your discount. It can move the overnight target. The offer is still the lender's document.
On the day you sign a fixed term, write down the discount off the posted rate and the posted rate the IRD will use. That pair is what makes the penalty large later. If you want to pay the balance down, use the prepayment privilege before you ask for a break. FCAC lists the privilege first. The percentage is the lender's, and it belongs in the commitment.
When should you get professional help?
Get help on your own file when the commitment, the charge, or the rest of the budget is doing more work than a published rate can do. A mortgage broker can shop more than one commitment. A real estate lawyer can read the charge, the discharge, and a port. A fee-only planner can set the payment next to the rest of your file.
That recommendation is for your file. It is not a claim that anyone signed off on this page. Confirm the commitment, the penalty calculator, and the current qualifying-rate page before you sign.
Frequently asked questions
Is variable always cheaper than fixed in Canada?
No. In an example on $500,000, fixed at 4.50% costs $105,024 of interest over five years, and variable at 3.95% costs $91,884 if prime stays flat. The variable path costs more once prime rises about 0.7 points from year 2 and stays there. Those rates are assumptions, not offers. In October 2026 the overnight target is 2.25%.
What is a typical variable mortgage penalty?
On many closed variable contracts it is three months' interest. TD describes its own closed variable that way. A closed fixed contract usually charges the higher of three months' interest and an interest-rate differential. FCAC's example, $200,000 at 6% with 36 months left and a 4% comparison rate, is $3,000 versus a $12,000 differential. The commitment controls.
Does the stress test treat fixed and variable the same way?
The formula is the same: the greater of the contract rate plus 2 percentage points or 5.25%, for uninsured mortgages at federally regulated lenders and for insured debt-service ratios. CMHC's caps are 39% gross and 44% total. A lower contract rate qualifies at a lower stress rate until the floor binds. An uninsured straight switch at renewal, with no added amortization or loan amount, is not expected to use the prescribed rate.
Should I use the 6.19% posted rate as my fixed rate?
No. The 6.19% figure is the chartered-bank posted 5-year conventional rate on the Bank of Canada's October 14, 2026 weekly series. It was 6.09% through September 30, 2026. It is a sticker used in many penalty formulas. The offered rate is a discount from a posted rate. Get the discount, and the posted rate the lender will use in an IRD, in writing.
Can I convert a variable mortgage to a fixed mortgage later?
Many lenders let you convert to a fixed term on offer that day. FCAC says a conversion usually has a fee, conditions may apply, and the new fixed rate may be higher than the variable rate you are leaving. Ask whether the new term changes the penalty before you convert.
How does this choice interact with a renewal?
At maturity you can usually pick either contract without a break fee, because the term is over. Before maturity, changing the type means breaking the old term. On an uninsured stand-alone loan, OSFI does not expect the prescribed qualifying rate on a straight switch at renewal if you are not borrowing more or stretching the amortization. The penalty can still apply if you are early.
Should I wait for the October 28, 2026 Bank of Canada decision?
Only if you can carry the payment either way. October 28, 2026 can move the overnight target, held at 2.25% on September 2, when the Bank said upside inflation risks had increased and that it is prepared to adjust. The announcement does not print your discount. The following decision is December 9, 2026.
What is a trigger rate?
A trigger rate is the rate at which a fixed payment only covers interest. FCAC says the lender may then require higher payments, a lump sum, or a conversion to fixed, and that a fixed-payment variable contract must disclose the trigger rate and that the amortization may lengthen. In an example, a 3.95% payment of $2,617 on $500,000 over 25 years only covers interest at about 6.36% at the start. That rate is an assumption, not an offer.
Sources
- Bank of Canada: September 2, 2026 interest rate announcement, reviewed October 16, 2026
- Bank of Canada: policy interest rate and announcement schedule, reviewed October 16, 2026
- Bank of Canada Valet: prime, posted 5-year conventional mortgage, and the overnight rate, reviewed October 16, 2026
- OSFI: minimum qualifying rate for uninsured mortgages, reviewed October 16, 2026
- CMHC: mortgage loan insurance for homeownership, Purchase, reviewed October 16, 2026
- Department of Finance: mortgage reforms in force from December 15, 2024, reviewed October 16, 2026
- FCAC: reducing prepayment penalties, reviewed October 16, 2026
- FCAC: interest on mortgages, reviewed October 16, 2026
- FCAC: managing money when interest rates rise, reviewed October 16, 2026
- FCAC: applying for a mortgage, including trigger-rate disclosure, reviewed October 16, 2026
- TD: what an interest-rate differential is, reviewed October 16, 2026
- FSRA: residential mortgage lending guidance for Ontario credit unions (CU0063INT), reviewed October 16, 2026
Related reading
- The mortgage stress test — when contract plus 2 points loses to the 5.25% floor.
- Prepayment penalties and the IRD — how the discount becomes the charge for leaving.
- Mortgage renewal in 2026 — when a straight switch skips the prescribed qualifying rate.
- The Canadian mortgage guide — contract rate, qualifying rate, penalty, and the revolving cap.
- Mortgage prepayment calculator — interest and months an allowed extra payment saves.
- Prepayment versus investing — whether a surplus beats the contract rate after tax.
The contract is a few years. The tax on the interest is the life of the loan.
Personal mortgage interest is not deductible. If you were comparing the payment with an investment return, do it after tax. The 2026 tax guide is that half of the worksheet.
Get the 2026 Tax Guide — $49 CAD
