Fixed vs Variable: Which Saves You More?
Compare both options side by side — then see what happens if rates go up, down, or stay the same over your term.
Fixed or variable — it's the question almost every Alberta mortgage client asks. Fixed gives you certainty: the same payment for your entire term regardless of what the Bank of Canada does. Variable moves with prime rate — historically lower, but with exposure to rate increases. The right answer depends on your financial situation, risk tolerance, and where rates are headed.
This calculator runs both scenarios side by side. You can model different rate movement assumptions — flat, rising, or falling — to see how each option performs over your term. It's the analysis your bank won't do for you, because they'd rather you just pick one and sign.
📊 The fixed vs. variable decision has real dollar consequences.
25 years of Alberta market data informs the advice. Get Shawn's read on current conditions →
Rate projections are illustrative only. Past Bank of Canada rate movements do not guarantee future behaviour. This calculator uses Canadian semi-annual compounding as required by federal mortgage regulations.
Fixed vs Variable Mortgage Rates in Canada: What You Need to Know
Choosing between a fixed and variable mortgage rate is one of the biggest decisions you'll make when signing or renewing a mortgage. Both have real advantages and real risks, and the right choice depends on your personal situation — not just what the numbers say today.
How Fixed Rates Work
A fixed-rate mortgage locks your interest rate for the entire term — typically 1 to 5 years. Your payment stays the same regardless of what happens to interest rates in the broader economy. Fixed rates are set based on the bond market and are generally higher than variable rates at the time of signing because you're paying a premium for certainty.
The biggest risk with fixed rates is the penalty. If you need to break your mortgage early — because you're selling, refinancing, or your circumstances change — the penalty on a fixed mortgage is calculated using the interest rate differential (IRD), which can be tens of thousands of dollars. This is the hidden cost that most people don't consider when choosing fixed.
How Variable Rates Work
A variable-rate mortgage is tied to the Bank of Canada's overnight rate, expressed as prime minus or plus a discount. When the Bank of Canada raises or lowers its rate, your mortgage rate adjusts accordingly. Some variable mortgages adjust your payment (adjustable rate), while others keep your payment the same but change the proportion going to interest vs principal (static payment).
Variable rates typically start lower than fixed rates, which means lower payments and more principal paid down in the early months. The trade-off is uncertainty — if rates rise significantly, your costs increase. The upside is that variable mortgage penalties are almost always three months of interest, making them far cheaper to break than fixed mortgages.
What Happened in 2020–2024
The recent rate cycle was historically unusual. In 2020-2021, variable rates dropped below 1.5%, and many borrowers locked in extraordinarily low rates. Then the Bank of Canada raised rates aggressively — from 0.25% in early 2022 to 5.0% by mid-2023. Variable rate holders saw their payments jump dramatically. Those who had locked in fixed rates at 2% watched from the sidelines. But by 2024-2025, rates began declining again, and the cycle continues.
This experience made many Canadians wary of variable rates. But it's important to remember that this was an exceptional period. Over most 5-year windows in Canadian history, variable rates have cost less than fixed. The question isn't whether rates might rise — it's whether the savings from starting lower outweigh the risk of future increases.
When to Choose Fixed
Fixed rates make the most sense when you need absolute payment certainty for budgeting, when the spread between fixed and variable is small (less than 0.50%), when you're unlikely to break the mortgage before the term ends, or when you believe rates are heading significantly higher. If financial stability and predictability are your top priorities, fixed gives you peace of mind.
When to Choose Variable
Variable rates make sense when the discount off fixed is significant (1%+), when you might sell or refinance before the term ends (lower penalty), when you have financial cushion to absorb potential payment increases, or when you believe rates are stable or heading lower. Variable also gives you the option to convert to fixed at any time with most lenders, though the fixed rate offered at conversion may not be the best available.
The truth nobody wants to hear: No one can predict where rates are going. Not the banks, not the economists, not the brokers. Anyone who tells you they know for certain is selling something. What a good broker CAN do is show you both scenarios with YOUR numbers, help you understand the risks, and structure your mortgage so you're protected either way.
Frequently Asked Questions
Can I switch from variable to fixed during my term?
Yes — most lenders allow you to convert your variable mortgage to a fixed rate at any time. However, the fixed rate they offer may not be the best available. Talk to your mortgage broker before converting, as it may be better to break the variable (with its low penalty) and take a new fixed rate from a different lender.
What determines the Bank of Canada rate?
The Bank of Canada sets its overnight rate based on economic conditions — primarily inflation and employment. When inflation is high, the Bank raises rates to cool the economy. When the economy slows, the Bank lowers rates to stimulate spending. Rate decisions happen roughly 8 times per year.
Is the fixed or variable penalty worse?
Fixed is almost always worse. Variable penalties are typically three months of interest (on a $400K mortgage at 4%, that's about $4,000). Fixed penalties use the interest rate differential (IRD) calculation, which can easily reach $15,000 to $30,000 or more, especially if rates have dropped since you signed.
What if I pick variable and rates skyrocket?
Your payment increases (or your amortization extends, depending on your mortgage type). Most lenders have a "trigger rate" — the point at which your payment no longer covers the interest. If rates rise dramatically, you can convert to fixed, make a lump sum payment to reduce your balance, or increase your regular payment. A broker can help you stress-test your budget before you commit to variable.
Has variable historically been cheaper than fixed?
Multiple studies have found that variable rates have cost less than fixed over the majority of 5-year periods in Canadian history. However, past performance doesn't guarantee future results. The 2022-2023 rate spike was a stark reminder that variable carries real risk. The decision should be based on your personal financial resilience, not historical averages.
Shawn has navigated every rate environment over 25 years. He won't guess — he'll show you both scenarios with your actual numbers and help you choose what fits your life. One call. No obligation.
📞 Call Shawn — 403-703-6847Serving Calgary, Okotoks, High River & Southern Alberta
Your Local Mortgage Professionals