Fixed vs Variable Rate Comparison

It depends on your rate today, your tolerance for payment uncertainty, and how long you'll keep the mortgage. Variable rates have historically averaged lower than fixed rates over long periods, but they move with your lender's prime rate and can rise (or fall) during your term. Fixed rates never change during the term, giving payment certainty, but are locked in even if rates subsequently fall. Use the calculator above to compare your specific fixed and variable payments side by side, plus the total interest difference over your chosen comparison horizon.

Canadian federal law (the Interest Act) requires fixed-rate mortgages to be compounded semi-annually, not-in-advance, which produces a true effective monthly rate slightly below a simple annual-rate-divided-by-12 calculation. Variable-rate mortgages are compounded monthly in practice. So even at an identical quoted nominal rate, a fixed-rate mortgage's payment would be marginally lower than a variable-rate mortgage's payment — though in practice fixed and variable rates are quoted at different nominal levels to begin with, which this calculator lets you compare directly.

Both track your lender's prime rate, but they behave differently day to day. With a static-payment VRM, your monthly payment stays the same for the whole term, and only the split between principal and interest shifts as prime moves — if prime rises enough, you may hit a 'trigger rate' where your payment no longer covers all the interest. With an adjustable-rate mortgage (sometimes called an ARM in Canada), your payment itself changes whenever prime changes, so principal-and-interest split stays roughly constant instead. Confirm which type your lender offers, since it changes how rate movements show up in your monthly payment.

On a static-payment variable-rate mortgage (VRM), the trigger rate is the interest rate at which your fixed monthly payment no longer covers even the interest portion of the loan, meaning the balance would start increasing instead of decreasing (negative amortization). Many federally regulated lenders now require a payment increase, a lump-sum payment, or converting to a fixed rate once the trigger rate is reached. This calculator's 'monthly payment difference' result helps you understand the payment gap between fixed and variable options to plan around this risk.

A common approach is to use your expected mortgage term (commonly 5 years in Canada, since that's the most popular fixed-rate term length) as the comparison horizon, since that's the period before you'd need to renew or renegotiate anyway. This calculator defaults the horizon to your full amortization period but lets you shorten it — for example to 5 years — to see the payment and total-interest comparison over a more realistic decision-making window rather than the entire life of the loan.

Many Canadian lenders allow you to convert a variable-rate mortgage to a fixed rate at any point during your term, usually locking in at whatever fixed rate the lender is currently offering for your remaining time left (not necessarily their best advertised rate). This flexibility is sometimes cited as a reason to start with a variable rate and convert later if rates start rising sharply — though the fixed rate available at conversion time is not guaranteed to be favourable, so confirm your specific mortgage contract's conversion terms with your lender.