Most Canadian mortgages are either fixed or variable. The choice changes how predictable your payment is, how much a penalty can cost, and how the lender prices your loan.
Fixed rate
A fixed rate stays the same for the whole term, so your payment does not change while the term runs. The trade-off is that breaking a fixed-rate mortgage early can cost more than breaking a variable one.
Variable rate
A variable rate moves with the lender’s prime rate. Your payment can stay the same while more or less of it goes to interest, or it can change, depending on how your mortgage is set up. Read the contract to see which applies.
How the penalty differs
A variable-rate penalty is usually three months’ interest. A fixed-rate penalty can be larger, because it may use the interest rate differential. The breaking a mortgage guide explains how each is estimated.
Stress test applies to both
Lenders test both fixed and variable mortgages at the qualifying rate, which is the higher of your contract rate plus 2% or the benchmark. Use the Canadian mortgage calculator to see payments and insurance before you compare offers.
Compare the whole term
Compare the rate, the penalty terms, the prepayment privileges, and whether the mortgage can be ported to a new home. The lowest rate is not always the cheapest mortgage over the term.
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Official source
FCAC · Mortgage terms and amortization
This guide explains general rules. Confirm your figures with your lender, lawyer, or the official source before you act.