One of the biggest choices when getting a mortgage in Ottawa is whether to lock in a fixed rate or float with a variable rate. This guide compares how they work, what they cost if you break them and how to decide.
Fixed vs variable at a glance
| Fixed rate | Variable rate | |
|---|---|---|
| Rate during term | Stays the same | Moves with the lender’s prime rate |
| Payment | Stays the same | Depends on the product (see below) |
| Prepayment penalty | Greater of 3 months’ interest or IRD | Usually 3 months’ interest |
| Compounding | Semi-annual | Monthly |
| Best for | Payment certainty and tight budgets | Flexibility and comfort with change |
Two types of variable mortgage
- Variable rate with a fixed payment: Your payment stays the same, but the split between interest and principal changes. If rates rise a lot, you may hit a “trigger rate” where your payment no longer covers the interest.
- Adjustable rate: Your payment changes each time the lender’s prime rate changes. Your principal payment stays on schedule.
Ask your lender which you are being offered.
What if you need to break your mortgage?
Life changes such as a sale, a move or a refinance can end a mortgage early. Variable mortgages usually charge three months of interest. Fixed mortgages charge the greater of three months of interest or the interest rate differential (IRD), which can be much higher, especially at banks that calculate IRD using posted rates. See our prepayment penalty guide.
How to decide
- Look at your budget. Could you handle a higher payment if rates rose?
- Think about your plans. Might you sell, refinance or move within your term?
- Compare the actual offers. A fixed and variable rate on the same day tell you the price of certainty.
- Read the penalty terms in your contract, not just the rate.
Frequently asked questions
Can I switch from variable to fixed later?
Many lenders allow you to convert a variable mortgage to a fixed rate during the term, usually at their current fixed rate. Check your contract for conversion terms.
Which is cheaper over time?
It depends on how rates move, which cannot be known in advance. Fixed offers certainty, while variable may cost less or more.
What term should I choose?
Common terms are 1 to 5 years. Shorter terms give flexibility, and longer terms give more certainty. See our rates guide.
Compare fixed and variable quotes for your situation
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