Mortgage Blog
Fixed vs. Variable Mortgage Rates in Canada (2025): Which Should You Choose?
July 29, 2025 | Posted by: Sarabjit Dhuna
If you're buying a home or renewing your mortgage in Canada this year, one of the biggest decisions you’ll face is: Should I go with a fixed or variable mortgage rate?
With the Bank of Canada beginning to cut rates after a prolonged high-interest period, Canadian borrowers are carefully weighing their options.
Let’s break down the pros, cons, and current trends to help you decide which rate type is right for you in 2025.
Mortgage Basics: Fixed vs. Variable in Canada
???? Fixed Rate:
You lock in a set interest rate for the term (often 1–5 years). Your payment stays the same throughout.
???? Variable Rate:
Your rate moves with the lender’s prime rate, which follows the Bank of Canada’s policy interest rate. Monthly payments may stay consistent, but the interest portion fluctuates.
Hybrid or Split Mortgage:
Some lenders offer a split between fixed and variable, giving you both stability and flexibility.
???? What’s the Mortgage Landscape in 2025?
-
Bank of Canada Rate: Down to 3.0% (from a high of 5.0% in 2023–2024).
-
5-Year Fixed Rates: Around 4.6% to 5.2%.
-
Variable Rates (Prime - Discount): Roughly 4.4% to 4.9%.
-
Inflation: Trending downward, but still being closely monitored.
-
Outlook: More rate cuts expected through late 2025, depending on economic performance.
✅ Fixed Rate: Pros & Cons
Pros:
-
Peace of mind: predictable monthly payments.
-
Protection from future rate hikes.
-
Easier budgeting for new homeowners.
Cons:
-
Higher initial rate than variable (at the moment).
-
Costlier to break early (especially for big banks).
-
If rates fall, you're locked in at a higher rate.
✅ Variable Rate: Pros & Cons
Pros:
-
Lower starting rate than most fixed options.
-
Benefit from potential rate cuts in late 2025–2026.
-
Lower penalties if you break your mortgage early.
Cons:
-
Payments can rise if rates increase again.
-
Less predictability, especially if the economy shifts.
-
Not ideal if you’re on a tight budget or fixed income.
???? What Are Canadians Doing in 2025?
According to mortgage brokers and economists:
-
Many Canadians are choosing short-term fixed rates (1–3 years) to wait out the market.
-
Others are opting for variable with a trigger rate cushion, hoping to save as rates fall.
-
Renewing homeowners are especially torn between locking in or riding the expected cuts.
???? What’s Best for You?
| Question | Go Fixed If... | Go Variable If... |
|---|---|---|
| Are you risk-averse? | ✅ Yes | ❌ No |
| Is stability a priority? | ✅ Yes | ❌ No |
| Do you believe rates will drop? | ❌ No | ✅ Yes |
| Do you plan to move or refinance soon? | ❌ No | ✅ Yes |
| Can you handle rate fluctuations? | ❌ No | ✅ Yes |
???? Pro Tip: Think About Penalties
In Canada, breaking a fixed mortgage with a major lender (like RBC, TD, Scotiabank) can cost tens of thousands in Interest Rate Differential (IRD) penalties. Variable-rate mortgages typically have a penalty of just three months’ interest.
That flexibility is worth considering, especially if you're unsure where life (or rates) will take you in the next few years.
???? Final Thoughts
There’s no universal “right” choice — just the one that best fits your lifestyle, risk comfort, and financial plans.
-
Go fixed if you want certainty and believe rates could rise or stay high.
-
Go variable if you can handle some risk and believe rates will keep falling.
-
Consider short-term fixed as a “middle ground” strategy.
???? Need Help?
Speak to Sarabjit who can walk you through real-world scenarios based on your income, credit, and goals.
