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Fixed vs. Variable Mortgages in Canada (2025)

Understanding Your Mortgage Options in 2025

With interest rates shifting again in 2025—following a series of Bank of Canada rate cuts earlier this year—Canadian borrowers are once again weighing the pros and cons of fixed, variable, and adjustable-rate mortgages. Each option responds differently to market conditions, and knowing how they work is an important step toward making the right financial choice.

This overview outlines the key differences and current considerations for each mortgage type to help you make a more informed decision this year.

Fixed-Rate Mortgages: Stability and Peace of Mind

A fixed-rate mortgage locks in your interest rate for the entire term, providing consistent monthly payments. According to recent data from Mortgage Professionals Canada, fixed-rate mortgages remain the most commonly selected option among Canadian borrowers—even as interest in variable rates grows following rate cuts by the Bank of Canada in early 2025.

Since fixed-rate mortgages are not directly tied to Bank of Canada policy rate changes, they offer financial stability and predictable payments, making budgeting more straightforward.

Best for:

  • Homeowners who prioritize financial security

  • Those planning to stay in their home for the full term

  • Borrowers expecting interest rates to rise

Benefits:

  • Fixed payments make budgeting simple

  • Protection against rising interest rates

Considerations:

  • Higher starting interest rates compared to variable or adjustable mortgages

  • Breaking the mortgage early can result in higher prepayment penalties

  • Less flexibility if rates drop during your term

Variable-Rate Mortgages: Potential Savings with Some Risk

A variable-rate mortgage (VRM) fluctuates based on the lender’s prime rate, which is influenced by Bank of Canada decisions. While the total payment may stay the same, the split between principal and interest will shift as rates change.

Following the Bank of Canada’s rate cut in March 2025—its first of the year—variable-rate mortgages have gained renewed attention from borrowers anticipating further cuts later this year.

Best for:

  • Borrowers comfortable with some risk and potential payment changes

  • Those who believe rates may stay low or decrease

  • Homeowners considering selling or refinancing before the term ends, as variable-rate mortgages typically have more predictable penalties

Benefits:

  • Historically lower interest rates compared to fixed-rate mortgages

  • Opportunity to save when rates decrease

  • More predictable prepayment penalties than fixed-rate mortgages

Considerations:

  • Payments may increase if interest rates rise

  • Requires financial flexibility for possible rate adjustments

Adjustable-Rate Mortgages: Market-Responsive Flexibility

An adjustable-rate mortgage (ARM) differs from a VRM in that both the interest rate and monthly payment adjust when the lender’s prime rate changes. ARMs are available from select lenders, including Scotiabank and National Bank, as well as various Mortgage Finance Companies.

Best for:

  • Borrowers looking for lower initial rates and adaptable payment structures

  • Those who may sell or refinance before their term ends

Benefits:

  • Lower starting rates compared to fixed or variable mortgages

  • Cost savings when interest rates decrease

  • More predictable prepayment penalties than fixed-rate mortgages

Considerations:

  • Payments adjust with interest rate changes, which may result in higher payments

  • Budgeting requires flexibility to accommodate fluctuating monthly costs

Which Mortgage Type Suits Your 2025 Financial Plan?

As of spring 2025, fixed rates remain attractive for borrowers seeking payment certainty, while variable and adjustable-rate mortgages may appeal to those expecting further rate reductions. Each option has its place depending on your financial goals, risk comfort, and time horizon.

If you're comparing products or unsure how current rate trends affect your choices, reaching out to a licensed mortgage professional can help clarify your options.

This content is provided for general information purposes only and should not be considered personal financial advice.

Fixed-Rate Mortgages: Stability and Peace of Mind

A fixed-rate mortgage locks in your interest rate for the entire term, ensuring consistent monthly payments. According to a 2024 survey by Mortgage Professionals Canada, 75% of borrowers selected fixed-rate mortgages, though interest in variable rates increased later as the Bank of Canada introduced rate cuts.

Since fixed-rate mortgages are not directly tied to Bank of Canada policy rate changes, they provide financial stability and predictable payments, making budgeting easier.

Best for:

  • Homeowners who prioritize financial security.

  • Those planning to stay in their home for the full term.

  • Borrowers expecting interest rates to rise.

Benefits:

  • Fixed payments make budgeting simple.

  • Protection against rising interest rates.

Considerations:

  • Higher starting interest rates compared to variable or adjustable mortgages.

  • Breaking the mortgage early can result in higher prepayment penalties.

  • Less flexibility if rates drop during your term.

Variable-Rate Mortgages: Potential Savings with Some Risk

A variable-rate mortgage (VRM) fluctuates based on the lender’s prime rate, which is influenced by Bank of Canada decisions. While your payment amount may remain the same, the portion applied to interest versus principal can change as rates shift.

Best for:

  • Borrowers comfortable with some risk and potential payment changes.

  • Those who believe rates may stay low or decrease.

  • Homeowners considering selling or refinancing before the term ends, as variable-rate mortgages typically have more predictable penalties than fixed-rate options.

Benefits:

  • Historically lower interest rates compared to fixed-rate mortgages.

  • Opportunity to save when rates decrease.

  • More predictable prepayment penalties than fixed-rate mortgages.

Considerations:

  • Payments may increase if interest rates rise.

  • Requires financial flexibility for possible rate adjustments.

Adjustable-Rate Mortgages: Market-Responsive Flexibility

An adjustable-rate mortgage (ARM) differs from a VRM in that both the interest rate and monthly payment adjust when the lender’s prime rate changes. ARMs are available from select lenders, including Scotiabank and National Bank, as well as various Mortgage Finance Companies.

Best for:

  • Borrowers looking for lower initial rates and adaptable payment structures.

  • Those who may sell or refinance before their term ends.

Benefits:

  • Lower starting rates compared to fixed or variable mortgages.

  • Cost savings when interest rates decrease.

  • More predictable prepayment penalties than fixed-rate mortgages.

Considerations:

  • Payments adjust with interest rate changes, which can lead to increased costs.

  • Budgeting requires flexibility to accommodate fluctuating monthly payments.

Which Mortgage is Right for You?

Selecting the right mortgage depends on your risk tolerance, financial situation, and long-term homeownership plans. Fixed-rate mortgages provide security and predictability, while variable and adjustable-rate mortgages offer savings opportunities with more uncertainty.

Which Mortgage Type Suits Your 2025 Financial Plan?
As of spring 2025, fixed rates remain attractive for borrowers seeking payment certainty, while variable and adjustable-rate mortgages may appeal to those expecting further rate reductions. Each option has its place depending on your financial goals, risk comfort, and time horizon.

If you're comparing products or unsure how current rate trends affect your choices, reaching out to a licensed mortgage professional can help clarify your options.