Whether you’re buying your first property or renewing your mortgage, your choice of interest rate will have a major impact on your finances, especially in these uncertain economic times. Are you having trouble deciding between a fixed-rate and a variable-rate mortgage? You’ll learn more about the pros and cons of each and help you decide which option is right for you, based on your financial situation and risk tolerance.
What is a fixed-rate mortgage?
Fixed-rate mortgages are not affected by market fluctuations and will remain the same until the end of your mortgage term.
The pros of a fixed-rate mortgage
Like the interest rate, your mortgage payments won’t change, making it much easier to manage your budget. This is a good choice if you’re looking primarily for financial stability, since you know exactly how much you’ll be paying.
Fixed-rate loans are often a good choice when interest rates are very low.
The cons of a fixed-rate mortgage
As a general rule, fixed mortgage rates tend to be higher than the variable rates available when you take out your mortgage. A fixed rate will protect you from rate increases, but it also means you won’t be able to benefit from any potential rate cuts.
If interest rates drop significantly or the terms of your mortgage no longer meet your needs, you will pay a penalty to break your mortgage contract.
In addition, if you receive a windfall and want to put it towards paying off your mortgage, prepayment on this type of loan comes with several conditions.
What is a variable-rate mortgage?
Variable-rate loans fluctuate—up or down—depending on your financial institution’s prime rate, which is based on the Bank of Canada’s key interest rate. As a result, the amount of your mortgage payment may change multiple times over the course of your loan.
The advantages of a variable-rate mortgage
While interest rates have soared in recent years, variable-rate loans have historically been the more advantageous option. By opting for a variable rate, you can take advantage of potential rate cuts.
Generally, it provides more flexible repayment terms than fixed-rate mortgages. What’s more, some lenders even allow you to switch from variable to fixed, so you can lock in your rate in the event of an increase.
If you want to break your mortgage, the penalties are usually three months’ interest, which is often less than with a fixed rate.
The disadvantages of a variable-rate mortgage
Opting for a variable rate could reduce your borrowing cost, but also increases your financial uncertainty. If the prime rate rises, you will have to make higher mortgage payments.
What’s the difference between fixed- and variable-rate mortgages?
A fixed-rate mortgage remains the same throughout the term, guaranteeing stable, predictable payments. Conversely, a variable-rate mortgage fluctuates according to the Bank of Canada’s key interest rate, which can lead to variations in your mortgage payment or the amount of interest being repaid.
A comparison of fixed and variable rates in 2025
Learn more about differences between fixed and variable rates.
The following rates are provided for information purposes only and may vary according to the amount borrowed, guarantees offered, and other factors.
| Criteria | Fixed rate | Variable rate |
| Interest rate (5 years)* | 4,04 % | 4,15 % |
| Payment stability | Stable payments | Variable payments (based on key interest rate) |
| Total estimated cost | — | — |
| Risk tolerance | Low to moderate | Medium to high |
| Ideal for | First-time buyers and families on a tight budget | Risk-tolerant investors and owners |
| Main risk | Lack of flexibility if rates go down | Unpredictable payments in the event of rate increases |
| Flexibility | Prepayment limitations Penalty equivalent to 3 months’ interest or interest rate differential, whichever is higher | More prepayment flexibility Penalty equivalent to 3 months’ interest |
| Conversion option | No | Yes |
* Multi-Prêts rates as at April 23, 2025. Some conditions may apply. Subject to change without notice.
Which type of mortgage is right for you?
Your choice of mortgage rate depends on your investment profile, your risk tolerance, current interest rates, and the broader economic context. Your borrowing power should also be taken into consideration.
Example 1: First-time buyer on a tight budget
Buying your first property comes with a number of associated costs and fees. As a young buyer, you may not have much leeway when it comes to your finances. Do you need stability and consistent monthly payments? A fixed-rate mortgage may be the best choice for you.
Example 2: Experienced real estate investor
Are you an experienced investor looking to benefit from the leverage effect by paying off your mortgage quickly? If your budget is flexible and you’re able to absorb a rise in interest rates, a variable rate may be right for you.
Example 3: Family with long-term plans
Between essential expenses, the cost of education, and unforeseen events, balancing a family budget is no easy task. If you’re planning to live in your home for a long time and want peace of mind, a fixed-rate mortgage could be the wiser option.
Questions to consider before you choose
These questions will help you assess your situation.
What’s your risk tolerance?
- Are you comfortable with uncertainty?
- Would the financial stress of higher monthly payments be a problem?
How easily can you absorb a rate hike?
- Does your budget have a “cushion” in case your mortgage payments increase?
- How would a 1% increase in your mortgage payments affect you?
Do you have a short- or long-term plan?
- A 5-year loan? A short-term plan to resell?
- The more long-term your plan, the more important stability becomes.
Frequently asked questions about fixed- and variable-rate mortgages
Can I switch from one to the other?
Are variable rates always better?
What type of rate should I choose when rates are low?
Talk to a Multi-Prêts mortgage broker
Our mortgage brokers can help you analyze your situation and compare the options based on your goals, your risk tolerance, and the current economic climate.
Key takeaways
- Fixed-rate mortgages remain unchanged throughout the term, guaranteeing stable, predictable payments.
- Variable-rate mortgages fluctuate with the Bank of Canada’s key interest rate, which may result in changes to your mortgage payment.
- When choosing what type of mortgage to take out, the most important factors to consider are your investment profile and your risk tolerance.