Fixed means the rate and payment stay the same for the whole term. Variable means the rate follows your lender's benchmark and can move during the term. This guide explains the machinery — payment shapes, trigger rates, and break costs — without recommending one over the other.
Applies in: across Canada
Fixed and variable are not two prices for the same thing. They are two different contracts, and the difference is what is allowed to move after you sign. A fixed rate locks the rate and the payment for the whole term. A variable rate lets the rate move during the term, and your contract decides whether the movement shows up as a different payment or as a different split inside the same payment. This guide explains that machinery only. It does not recommend a fixed or a variable rate, a term length, a lender, or a broker, and it does not forecast where rates are going.
The timing is dated, and the date matters for the examples. On October 28, 2026, the Bank of Canada raised its policy rate by 25 basis points to 2.5 percent, with the Bank Rate at 2.75 percent and the deposit rate at 2.45 percent. The next scheduled announcement date is December 9, 2026. That decision does not set your mortgage rate. It moves the benchmark that variable rates follow, and it reaches fixed-rate borrowers at renewal. This guide carries no mortgage rates, because lender rates go stale within days. Recheck the Bank of Canada decision calendar before planning around any rate expectation.
A mortgage term is the length of time your mortgage contract is in effect. The Financial Consumer Agency of Canada puts terms at a few months to five years or longer. At the end of each term you must renew the mortgage if you cannot pay the remaining balance, and most borrowers renew several times before the balance is gone. Every time you renew, you renegotiate the interest rate, so your payments may be higher or lower in the next term than in the last one.
The amortization period is the length of time it would take to pay the mortgage off in full on the current payment schedule. A longer amortization spreads payments over more years, so each payment is typically lower, but the total interest paid over the life of the mortgage is higher. If your down payment is less than 20 percent of the home's price, the maximum amortization is 30 years for a first-time buyer or a new build, and 25 years in all other cases. Above 20 percent down, your lender sets the maximum.
The interest rate is what the lender charges you to borrow the money. The rate, the term, and the amortization work together: the rate decides how much of each payment is interest, the amortization decides how long the schedule runs, and the term decides how often the rate is renegotiated. Confusing the term with the amortization is the most common reading error in mortgage documents. A five-year term on a 25-year amortization means the rate is fixed or variable for five years, and the balance is scheduled to clear in 25.
A fixed interest rate stays the same for the entire term. The Financial Consumer Agency of Canada states it in one sentence, and the consequence follows directly: your payments stay the same for the entire term, and you know in advance how much principal you will have paid by the end of the term. Fixed rates are usually higher than variable rates for a similar term. The extra cost buys certainty about the payment, and it buys it only for the term you signed. Nothing about a fixed rate protects the next term. When the term ends, the new rate is whatever the lender offers at renewal, and the payment is recalculated from it.
A fixed rate is also the rate type that reaches you latest after a Bank of Canada decision. The decision moves the benchmark for variable rates. It does not rewrite a signed fixed contract. The reason fixed offers themselves move between quotes, even while the policy rate stands still, is that lenders price fixed terms against longer-term borrowing costs rather than against the policy rate alone. A fixed quote is firm only for the length of its rate hold, and the hold terms are in the offer. Read the hold length and the conditions in writing, and compare offers on the written terms, not on a remembered phone quote.
Fixed may suit a borrower who wants the payment to stay the same, wants to know the principal paid by the end of the term in advance, or expects market rates to rise. The agency lists those three cases. It does not say fixed is the right choice for everyone, and neither does this guide. The cost of the certainty is real: a higher rate than the variable equivalent at signing, and a break cost that can be large, covered below.
A variable interest rate may increase and decrease during the term. It is typically lower than a fixed rate for a similar term at signing. The rate you pay is usually written as your lender's benchmark rate plus or minus a fixed amount, and that fixed amount stays the same for the term. What changes is the benchmark. Your contract names the benchmark and the fixed amount. Read those two lines before you sign, because they are the whole mechanism: everything else in the variable section of the contract describes what happens when the benchmark moves.
There are two payment shapes, and lenders use different names for them, so check the contract wording rather than the product name.
With fixed payments and a variable rate, the payment amount stays the same. The split inside the payment changes instead. If the rate goes up, more of the payment goes to interest and less to principal. If the rate goes down, more goes to principal and the mortgage is paid off faster. The payment looks steady while the progress against the balance speeds up or slows down. That steadiness is the appeal and the trap: a borrower can pay the same amount for months while the principal barely moves, and only discover it by reading the statement.
With adjustable payments and a variable rate, the payment amount changes when the rate changes. A set amount of each payment applies to the principal, and the interest portion changes with the rate. You know in advance how much principal you will have paid by the end of the term, because the principal portion is fixed by the schedule. A rate rise shows up immediately as a larger payment, and a rate fall shows up as a smaller one. The budget feels the movement at once, and the balance never stalls.
The Financial Consumer Agency of Canada gives one worked example that shows the scale. Take a mortgage of 300,000 dollars with a variable rate and a 25-year amortization. At 5 percent the monthly payment is 1,745 dollars. At 6.5 percent it is 2,009 dollars, an increase of 264 dollars a month. That example assumes the adjustable-payment shape, where the payment absorbs the change. On a fixed-payment mortgage the same rate rise would instead shrink the principal portion by a similar amount each month, and at some point the payment would stop covering the interest at all. The agency's full table runs from 2 percent to 7 percent on the same 300,000-dollar, 25-year mortgage, with payments from 1,270 to 2,101 dollars a month. Use the agency's mortgage calculator with your own balance and amortization to see your own version of that table. The point of the example is not the numbers. It is that a rise of one and a half percentage points is a few hundred dollars a month, whichever shape absorbs it.
On a fixed-payment variable mortgage, there is a rate at which the payment stops covering even the interest. The Financial Consumer Agency of Canada calls it the trigger rate: the interest rate at which the mortgage payment only covers interest costs, so none of the payment goes toward paying down the principal, and the payment does not cover the full amount of interest for that period. When that happens, the bank will generally add the unpaid interest to the balance owed. The balance grows. That is negative amortization, and the agency warns that unpaid interest builds up, the total owed keeps increasing, and the borrower may have to contribute more capital to avoid problems renewing the mortgage.
Your contract also names a trigger point. The agency's interest page says the trigger point is listed in the mortgage contract, and that if market rates increase to the trigger point, the lender may increase the payments so the mortgage is paid off by the end of the amortization period. Treat the trigger rate and the trigger point as two contract facts to find before you sign, not as numbers to guess. The agency's advice for finding your trigger rate is direct: review the mortgage agreement, or contact the lender and ask it to calculate the exact rate and explain the options if you reach it.
If you reach the trigger rate, the lender may require you to increase your payments, make additional payments to cover the excess interest, or change to a fixed-rate mortgage. It may also offer to extend the amortization period, which avoids a payment increase but means paying for longer and paying more interest in total. The agency's guidance to lenders expects them to offer support to borrowers at risk in exceptional circumstances, including waiving prepayment penalties on lump sums paid to avoid negative amortization in some cases. None of that is automatic. Contact the lender early, while the principal portion is shrinking but still positive, and ask what the options are in writing. Waiting until the balance is growing narrows every option.
Variable rates step. The benchmark moves after Bank of Canada decisions, which happen on eight scheduled dates a year, and the variable rate follows. Between decisions, the variable rate on an existing mortgage generally sits still. Fixed rates drift. Lenders re-price fixed offers continuously against longer-term borrowing costs, so a fixed quote can rise or fall on a week when the policy rate does not move at all, and can stand still on the day of a Bank of Canada decision if the market already expected it. The two rates respond to different forces, so they can move in opposite directions in the same week. A borrower who watches only the Bank of Canada calendar will misread fixed offers, and a borrower who watches only fixed offers will misread what happens to a variable payment next month.
Neither movement is a signal to act on by itself. A variable rate that has risen is already in the payment or the statement. A fixed offer that has moved is only an offer until the hold expires. The useful habit is boring: check the benchmark your contract names, check the statement for the principal portion of the last few payments, and check the renewal date. Those three checks tell you which rate type you hold, how it is behaving, and when it will be renegotiated.
A hybrid or combination mortgage splits the loan into portions. Part carries a fixed rate and part carries a variable rate. The fixed portion gives partial protection if rates rise, and the variable portion gives partial benefit if rates fall. Each portion may have different terms, which means the portions can renew on different dates, carry different prepayment privileges, and respond differently to the same rate decision. The agency warns that hybrid mortgages may be harder to transfer to another lender for exactly that reason. Before signing one, get the terms for each portion separately: the rate type, the term, the payment shape, and the prepayment privilege. A hybrid described as a single rate in a sales conversation is two mortgages wearing one name.
Whether breaking a mortgage is cheap or expensive depends first on whether the mortgage is open or closed. An open mortgage typically carries a higher interest rate and allows more flexibility for extra payments or paying the mortgage off. A closed mortgage typically carries a lower interest rate and limits extra payments to the prepayment privilege in the contract. The privilege is the amount you may pay above your regular payments each year without a prepayment charge: a lump sum, a payment increase, or a frequency increase, in the amounts and on the dates the contract allows. Lenders must tell you the yearly dollar amount of that privilege annually, in writing.
Going beyond the privilege, breaking the contract, refinancing, or transferring the mortgage to another lender before the end of the term can each trigger a prepayment charge. The charge is calculated by the method your contract states, and federally regulated lenders must explain that method annually and give you a written statement of the actual charge, with the inputs used, when you confirm you are prepaying. The two methods the agency's code of conduct names are a certain number of months' interest, and the interest rate differential. The differential compares your contract rate with a comparison rate for the time remaining on your term, and applies the difference to your balance over that remaining time. Which comparison rate the lender uses, and where to find it, is information the lender must give you. Lender calculators exist for estimating the charge with your own balance and remaining term, and the lender must also staff a phone line where knowledgeable staff can give you the actual charge and a written statement of it.
Two practical consequences follow. First, get the written quote before deciding anything. A break cost estimated from another borrower's mortgage, or from a rate quoted months ago, will mislead you, because the comparison rate and the remaining term are specific to your file and to the day. Second, ask about porting. If you are moving, a portable mortgage lets you transfer the existing balance, rate, and terms to the new home, which avoids the prepayment charge. Check eligibility and restrictions with the lender before assuming the mortgage ports. A related feature is assumability: a buyer can take over a seller's mortgage on the same terms, typically on fixed-rate mortgages and not on variable-rate mortgages or home equity lines of credit, with the lender's approval of the buyer. In some provinces the seller may remain personally liable if the buyer stops paying, so get the release terms in writing.
The charge type on the property registration matters to the same decision. A standard charge secures the mortgage only. A collateral charge may secure multiple loans with the same lender, including a line of credit, and may be registered for more than the mortgage amount. Switching lenders with a collateral charge can mean extra steps and fees, and the renewal guide on this site covers that in detail.
Ask these six questions of any offer, and get the answers in the contract or in a written offer, not in a phone summary. What benchmark does the variable rate follow, and what fixed amount is added to or subtracted from it for the term. Which payment shape applies if the rate is variable: fixed payments with a shifting split, or adjustable payments. What the trigger rate and trigger point are in the contract, and what the lender requires if either is reached. Whether the mortgage offers an interest rate cap or a convertibility feature, what each costs, what conditions apply, and how the converted fixed rate is set. What the prepayment privilege allows each year, how the prepayment charge is calculated, which comparison rate is used, and where that rate is published. And whether the mortgage is open or closed, whether it is portable, and whether it is assumable. A lender that answers all six in writing has given you a contract you can compare. A lender that answers them verbally has given you a conversation.
This guide describes process and machinery only. It does not recommend a fixed or variable rate, a term length, a lender, or a broker. It does not forecast where rates are going, and it does not say whether any individual borrower can afford a higher payment. The Bank of Canada decision is stated as a dated fact, with December 9, 2026 as the next scheduled announcement and the recheck point for the rate context in this guide. Everything else in the guide is machinery that does not expire on a decision date, but the offers you receive do: judge each offer on its written terms at the time you receive it, and recheck the official pages in the Sources list before relying on any rule stated here.
Figures this guide deliberately does not carry: no current mortgage rates, no prime rate level, no discount or premium figures off prime, no lender offers, and no dollar example of a prepayment charge. Those numbers are specific to a lender, a contract, and a day, and they change constantly. Where this guide names a number, it is a rule, a date, or the Financial Consumer Agency of Canada's own worked example: the October 28 and December 9, 2026 Bank of Canada dates, the 2.5 percent policy rate, the few-months-to-five-years term range, the 30-year and 25-year amortization maximums for down payments under 20 percent, and the 300,000-dollar example with its 1,745-dollar and 2,009-dollar payments.
No, not during the term. A fixed interest rate stays the same for the entire term, and the payment stays the same with it. The Financial Consumer Agency of Canada states this plainly on its interest-on-mortgages page. A Bank of Canada decision reaches a fixed-rate borrower at renewal, when the rate is renegotiated, or when a new term is signed. A variable-rate borrower feels it during the term, because the variable rate follows the benchmark named in the contract and that benchmark moves after policy-rate changes. The decision dated in this guide is October 28, 2026, when the Bank of Canada raised its policy rate by 25 basis points to 2.5 percent, with the next scheduled announcement on December 9, 2026. Judge any offer on the numbers written in it, not on the headline.
Both are variable-rate mortgages, and the difference is what moves when the rate moves. With fixed payments, your payment amount stays the same and the split inside it changes: a rate rise sends more of each payment to interest and less to principal, and a rate fall does the reverse, paying the mortgage off faster. With adjustable payments, the payment amount itself changes when the rate changes, while a set amount of each payment applies to the principal, so you know in advance how much principal you will have paid by the end of the term. The Financial Consumer Agency of Canada describes both shapes on its interest-on-mortgages page. Which shape you have is written in your mortgage contract, and it matters more than the starting rate, because it decides whether a rate rise shows up as a bigger payment or as slower progress against the balance.
The trigger rate is the interest rate at which your mortgage payment only covers the interest costs. The Financial Consumer Agency of Canada defines it that way on its page about managing money when interest rates rise, and it applies to variable-rate mortgages with fixed payments. When you reach it, none of your payment goes toward paying down the principal, and your bank will generally add the unpaid interest to the balance you owe, which is negative amortization: the amount you owe grows instead of shrinking. The agency says the best way to find your own trigger rate is to review your mortgage agreement or ask your lender to calculate it, because it depends on your balance, your payment, and your amortization. If you reach it, your lender may require you to increase your payments, make additional payments to cover the excess interest, or change to a fixed-rate mortgage. It may also offer to extend your amortization, which avoids a payment increase but means paying for longer and paying more interest overall. Contact your lender as soon as you see the principal portion of your payments shrinking toward zero, rather than waiting for the balance to grow.
Often, yes, if your contract has a convertibility feature, and the Financial Consumer Agency of Canada describes that feature on its interest-on-mortgages page. Convertibility lets you change your mortgage to a fixed interest rate at any time during the term. Three conditions usually apply, and all three are worth confirming before you rely on the feature. You usually have to pay a fee. Certain conditions may apply, and they are set out in your contract. And your new fixed interest rate may be higher than the variable rate you have been paying, because the fixed rate is set at the time you convert, not at the time you signed the variable mortgage. Ask your lender to put the conversion terms in writing — the fee, the conditions, and how the new rate is set — before you treat convertibility as a safety net. A related protection is an interest rate cap: a maximum interest rate your lender can charge on the mortgage, so you never pay more in interest than the cap even if rates rise. Ask whether your mortgage offers a cap, and read what it covers, because a cap and a conversion feature are different protections.
Because the two calculation methods behave differently when rates have fallen, and because your contract decides which method applies to your mortgage. Federally regulated lenders must explain, every year, how they calculate the prepayment charge for your mortgage: a certain number of months' interest, or the interest rate differential, known as the IRD. The IRD compares your contract rate with a comparison rate for the time remaining on your term and applies the difference to your balance over that remaining time. When rates have fallen since you signed, that difference is large, and the IRD figure grows with the balance and the time left. That is the mechanism that makes some fixed-rate break costs run into the thousands. The exact comparison rate, the formula, and which method applies to your mortgage are in your contract, and your lender must give you a written statement of the actual charge, including the comparison rate and term remaining used, when you confirm you are prepaying. Do not estimate a break cost from another borrower's experience. Ask your lender for the written quote, and use its calculator with your own balance and remaining term. Porting the mortgage to a new home, where your lender allows it, is one way to avoid a prepayment charge altogether.
A hybrid or combination mortgage splits the loan: part of it carries a fixed interest rate and part carries a variable rate. The fixed portion gives partial protection if rates rise, and the variable portion gives partial benefit if rates fall. Each portion may have different terms, and the Financial Consumer Agency of Canada warns that hybrid mortgages may be harder to transfer to another lender, because the two portions do not always move together. Open and closed describe a different axis: flexibility. An open mortgage typically carries a higher interest rate and allows more flexibility for extra payments or paying the mortgage off. A closed mortgage typically carries a lower interest rate and limits extra payments to the prepayment privilege written in the contract — an annual amount you may pay above your regular payments without a prepayment charge. If you pay more than the privilege allows, break the contract, refinance, or transfer the mortgage before the end of the term, a prepayment charge may apply. Check both axes in your contract: the rate type on each portion, and whether the mortgage is open or closed.