Rates · 6 min read
Fixed vs. variable in today’s rate environment
Not a prediction — a decision framework. Your break-even, your penalty exposure, and how much uncertainty your budget can actually absorb.
Anyone who tells you confidently which one will win over the next five years is guessing. Nobody knows. What you can do is make the decision on things you actually know about yourself — and there are four of them.
1. What is the gap today?
Compare the fixed rate you are offered against the variable. That spread is the price of certainty. When variable sits well below fixed, you are being paid to accept risk. When they are close — or variable is higher — you are paying for the privilege of taking it, which rarely makes sense.
2. What happens if you break early?
This is the question almost nobody asks, and it is the one that costs the most money.
- Breaking a variable costs three months' interest. On a $500,000 mortgage that is roughly $5,000 — unpleasant, survivable.
- Breaking a fixed costs the greater of three months' interest or the interest rate differential. At a major bank, using posted-rate IRD math, that can be $15,000 to $25,000 on the same balance.
A large share of Canadians break their five-year term before it ends — a move, a separation, an upsize, a refinance. If there is any real chance you are one of them, the penalty structure matters more than the rate.
3. How much movement can your budget take?
Take your variable payment and recalculate it two full percentage points higher. If that number makes you uncomfortable, you have your answer, regardless of what the spread looks like. A rate you cannot sleep through is the wrong rate.
4. How long are you really keeping this mortgage?
Buying a starter home you expect to outgrow in three years is a completely different problem from settling into your forever home. Shorter horizon, shorter term — a two- or three-year fixed is often the honest middle path, and it is chronically under-recommended because it is less profitable to sell.
The in-between options
- Variable with a fixed payment. Your payment stays level; the split between principal and interest moves. Budget stability without locking the rate.
- Short-term fixed. Certainty now, a decision point sooner, without a five-year IRD exposure.
- A convertible variable. Lets you lock into a fixed mid-term. Read the conversion terms carefully — the rate you convert at is the lender's, not the market's.
General information only, not financial advice, and not an offer of credit. Figures and program limits are current at the time of writing and do change — confirm the details that apply to your file with me before you act on them.
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