The Core Difference

Fixed rate: your rate stays the same for the entire term (1–5 years). Predictable payments, no surprises. Variable rate: your rate moves with the Bank of Canada's prime rate. Lower on average historically, but payments or amortization can change.

Fixed Rate

Pros

  • +Predictable payments for the full term
  • +Protection against rate increases
  • +Peace of mind — especially for tight budgets

Cons

  • −Slight premium for certainty
  • −IRD penalty if you break early — can be significant
  • −Miss out if rates fall during your term

Variable Rate

Pros

  • +Historically lower average rates over time
  • +Only 3 months interest penalty to break — very manageable
  • +Benefit directly if Bank of Canada cuts rates

Cons

  • −Payments or amortization can change with rate moves
  • −Uncertainty requires more financial flexibility
  • −Can feel stressful when rates are rising

The Rate Environment Context — 2026

After the rate spike of 2022–2023, the Bank of Canada began cutting rates in 2024. In 2026, the rate environment is more settled — but uncertainty remains. The decision between fixed and variable in this environment depends on your view of where rates go from here, and how much fluctuation your budget can absorb.

The honest broker answer:

Deane doesn't predict rates — no one can. What Deane does is model both scenarios with your actual numbers (payment difference, penalty difference, total interest) and let you make an informed decision based on your risk tolerance and timeline.

When Fixed Rate Usually Makes More Sense

  • Tight monthly budget — payment certainty is essential
  • You're risk-averse and rate uncertainty would cause stress
  • You plan to stay in the property for the full term
  • Rates are expected to rise (fixed locks in current rate)

When Variable Rate Usually Makes More Sense

  • Your budget has flexibility to absorb payment changes
  • You're likely to break or refinance before the term ends
  • Rates are expected to stay flat or decline
  • You want the lowest penalty option (3 months interest vs IRD)

The One Underrated Advantage of Variable

The penalty. Fixed rate mortgages broken early — which is common due to life changes (divorce, job relocation, financial hardship) — can carry IRD penalties of $10,000–$30,000+. Variable rate mortgages have a predictable 3-month interest penalty, typically $3,000–$8,000 on an average mortgage. This flexibility has real financial value that's easy to overlook when choosing a term.