On a $450,000 mortgage, fixed at 4.90% costs $2,592 a month and variable at 5.30% costs $2,710, but break the fixed early and the IRD penalty can run $15,000-$40,000 against the variable's capped ~$6,000. The real comparison is the exit, not the rate.
Adjust the variables below to simulate outcomes, compare rates, and see real-time projections.
A direct comparison of features, rules, limits, and eligibility requirements.
| Feature / Detail | Fixed Rate Mortgage | Variable Rate Mortgage |
|---|---|---|
Payment stability | Frozen for the whole term, typically 5 years | Moves with prime (ARM), or stays flat while your amortization stretches (static-payment VRM) |
Penalty to break early | Greater of 3 months' interest or the Interest Rate Differential: routinely $15,000-$40,000 on a 5-year fixed | Capped at 3 months' interest, about $6,000 on a $450,000 loan |
If rates fall | You keep paying the old rate until renewal | Your interest cost drops automatically with prime |
If rates rise | Nothing changes until renewal | ARM payments jump; static-payment VRMs risk hitting their trigger rate |
Compounding | Semi-annual, mandated by the federal Interest Act: slightly cheaper per point of rate | Typically monthly off prime |
Renewal reality (2026) | Since July 2026, uninsured borrowers switching lenders at renewal (straight switch) no longer face a new stress test | Same straight-switch exemption applies |
Analyze the advantages and drawbacks of each financial product before making a decision.
At today's simulator defaults, $450,000 over 25 years. The fixed at 4.90% costs about $2,592 a month and the variable at 5.30% about $2,710. A $118 monthly gap: real money, but roughly $7,000 over five years if nothing changes.
Now price the exits. Break the variable at any point and the penalty is three months' interest: about $5,960. Break the fixed in year two after rates have dropped 1.5 points, and the Interest Rate Differential penalty on the remaining three years runs near $19,700 on the same balance. The 'cheaper' mortgage just became the expensive one, thirteen years of monthly savings gone in one closing statement.
This is why brokers ask about your five-year life before your rate preference. In Canada — where most people sign five-year terms and most lives don't hold still for five years. The penalty structure is the product.
Canada sells two kinds of variable. The adjustable-rate version (Scotiabank, National Bank) moves your payment whenever prime moves: transparent, occasionally painful. The static-payment version (TD, RBC, CIBC and others) keeps your payment flat and silently rebalances it: rates rise, more of the same payment goes to interest, less to principal, and your amortization stretches.
Push rates far enough and you reach the trigger rate: the point where your flat payment no longer covers even the month's interest. The 2022-23 cycle marched thousands of static-payment borrowers into exactly this wall: banks called, demanding higher payments, lump sums, or conversion to fixed at the worst possible moment.
If you take a static-payment variable, know your trigger rate the day you sign (your lender can quote it), and treat any payment that isn't shortening your amortization as a warning light, not a convenience.
For years, uninsured borrowers were half-trapped at renewal: switching lenders meant re-passing the stress test at the higher of contract-plus-2% or the qualifying floor, so many just signed whatever their bank offered. OSFI removed that wall: since July 2026, a straight switch (same balance, same amortization, new lender) requires no new stress test.
The practical effect is leverage. Fixed-rate borrowers whose term ends can now genuinely shop 5-10 lenders; variable borrowers can jump ship without requalifying. Renewal letters from your own bank are opening offers, not verdicts: data from rate comparison sites consistently shows first-offer renewal rates running 0.2-0.5 points above what switching secures.
Two boxes to tick before you switch: the exemption covers straight switches, not refinances (no new money, no re-amortization), and start shopping 120 days out: that is how long most lenders will hold a rate for you.
Canadians break roughly six in ten five-year mortgages before term: divorce, relocation, upsizing, and that statistic decides this comparison more than any rate forecast. If your five-year plan has real uncertainty in it, the variable's capped ~$6,000 penalty is insurance the fixed cannot offer: one IRD bill can erase years of a fixed rate's 'savings'. Take the fixed when the household budget genuinely cannot absorb a payment jump, when you are confident you'll hold the full term, or when fixed prices meaningfully below variable: as it does at today's defaults. And whichever you sign: since OSFI's July 2026 straight-switch exemption, you can shop your renewal to any lender without re-passing the stress test, so never accept your bank's first renewal letter.
Tight-margin budgets that must survive the full term unchanged, first buyers at the edge of affordability, and anyone certain they will not move or refinance for 5 years.
Anyone with a realistic chance of selling, refinancing or relocating mid-term, and borrowers with room to absorb payment swings in exchange for a capped exit.
The rules and figures on this page are researched from official primary sources:
