Fixed vs. Variable Mortgages: Which is Right for You?

Tim Lyon • September 25, 2025

When arranging a mortgage, one of the first decisions you’ll need to make is whether to go with a fixed or variable rate. Both options have their own benefits and challenges, and understanding the differences will help you choose the one that fits your financial situation best.


In this post, we’ll break down the differences between fixed and variable mortgages, how they’re priced, the pros and cons of each, and what you should consider before making a decision.


What are Fixed and Variable Mortgages?

Fixed Rate Mortgage: Your interest rate stays the same for the entire mortgage term. That means your monthly payments won’t change, making budgeting more predictable.


Variable Rate Mortgage: Your interest rate changes during the term. There are two main types:

  • Variable Rate Mortgage (VRM): Your payment amount stays the same, but how much goes toward principal vs. interest changes as rates move.
  • Adjustable Rate Mortgage (ARM): Your payment amount itself changes when rates move.


How Do Fixed and Variable Mortgages Work?

Fixed
  • Your rate is set when you sign your mortgage contract.
  • Payments remain consistent, regardless of whether interest rates rise or fall.
  • Fixed rates are heavily influenced by the Canadian 5-year bond yield.
Variable
  • Your rate is tied to your lender’s prime rate, which follows the Bank of Canada’s overnight lending rate (reviewed 8 times a year).
  • Lenders usually offer a discount from prime, such as Prime – 0.4%.
  • You can often lock into a fixed rate at any time (though usually for a term equal to or longer than what’s left on your mortgage).


Penalties for Breaking Your Mortgage

Fixed
  • The greater of three months’ interest or the Interest Rate Differential (IRD). IRD can be very costly if rates have dropped since you signed.
Variable
  • Always three months’ interest — simpler and usually less expensive.


Pros and Cons

Fixed Rate Pros:
  • Predictable payments, easier budgeting
  • Protection if rates rise
  • Currently about 1% lower than variable, meaning you may qualify for more
Fixed Rate Cons:
  • More penalty risk if you break the mortgage early
  • You miss out if rates fall


Variable Rate Pros:
  • Benefit if rates decrease
  • Less penalty risk(3 months’ interest)
  • Option to lock into fixed at any time
Variable Rate Cons:
  • Payments (ARM) or interest portion (VRM) can rise if rates go up
  • Less predictable for budgeting
  • Lock-in rates may not always be the best available



Quick Summary

• Fixed mortgages = stable, predictable, tied to bond yields, but more penalty risk.
• Variable mortgages = tied to Bank of Canada, potential savings, lower penalty risk, but less predictable.
• VRM vs. ARM = VRM keeps payments steady while ARM adjusts payments with rates.


Next Steps

Choosing between fixed and variable depends on your risk tolerance, financial goals, and comfort with rate changes. If you’re unsure which option is right for you, let’s talk about your situation and find the best fit.

Need help with your mortgage? Book a consultation or call 778-988-8409.


Mortgage Term Glossary

Adjustable Rate Mortgage (ARM): A variable mortgage where payments increase or decrease as rates change.
Amortization: The total length of time it will take to pay off your mortgage completely (typically 25–30 years in Canada).
Bond Yield: The return investors get from government bonds. Used as a benchmark for fixed mortgage rates.
Down Payment: The upfront amount you pay toward the purchase price of a home, expressed as a percentage of the total price.
Equity: The difference between what your home is worth and what you owe on your mortgage.
Fixed Rate: An interest rate that stays the same for the entire mortgage term.
Interest Rate Differential (IRD): A penalty calculation for breaking a fixed mortgage when current rates are lower than your original rate.
Lock-In: The option to switch from a variable mortgage to a fixed mortgage during your term.
Mortgage Term: The length of your mortgage contract with your lender (typically 1–5 years), after which you need to renew.
Prime Rate: The interest rate banks use as a baseline for loans, influenced by the Bank of Canada’s overnight rate.
Variable Rate Mortgage (VRM): A variable mortgage where payments stay the same, but the principal vs. interest split changes with rate moves.
Variable Rate: An interest rate that changes during your mortgage term based on lender prime rates.

Tim Lyon

Mortgage Consultant

25 Year vs 30 Year Amortization: A Practical Guide

By Tim Lyon • January 25, 2026
Trying to choose between a 25 and 30 year mortgage amortization? Learn how each affects your payments, interest, and flexibility so you can decide with confidence.

How Rental Income Impacts Your Mortgage Approval (And Why Lender Choice Matters)

By Tim Lyon • January 20, 2026
If you are buying a home with a suite, keeping your current home as a rental, or already own a rental property, mortgage qualification can get confusing fast. The frustrating part is that you can do everything “right” and still get very different answers depending on which lender you talk to. Here’s a simple breakdown so you understand it and don’t miss out. What are Debt Service Ratios? In Canada, lenders qualify you using two main ratios: Gross Debt Service (GDS) This looks at housing costs only , typically: Mortgage payment Property taxes Heating 50% of strata fees (if applicable) GDS typically needs to be 39% or less of your gross income. Total Debt Service (TDS) This includes everything in GDS , plus other debts like: Car loans Credit cards Lines of credit Student loans TDS typically needs to be 44% or less of your gross income. These ratios are the foundation. If they do not work, the lender will not approve the mortgage, even with strong credit and a solid down payment. How Lenders Treat Rental Income Most people assume lenders look at rental properties based on simple cash flow (rent minus mortgage payment). In reality, most lenders use one of two methods: 1) Addback A percentage of the rental income is added to your gross income for qualification purposes. 2)Offset A percentage of the rental income is subtracted from the mortgage payment tied to the rental property. Different lenders use different percentages and different worksheets. That is why the same borrower can qualify with one lender and fail with another. Benefits of Understanding Lender Methods When you understand how rental income is calculated, you can: Avoid being under-qualified by a lender with conservative rules Get a more accurate picture of your real purchasing power Choose a lender that fits your situation (instead of forcing your situation to fit the lender) Important Considerations A few key points to keep in mind: Rental income is rarely counted at 100% , but some lenders are more generous than others. The method matters just as much as the percentage (addback vs offset). If you own multiple properties, lender worksheets can change the result dramatically. Your lender choice is a strategy decision , not just a rate decision. Real-World Example: Same Clients, Two Very Different Outcomes Here’s an example comparing lenders Scotiabank and Strive, using a fictitious couple: Scenario Household income: $160,000 Existing townhome: $800,000 value with a $525,000 mortgage ( $2,500/month payment) Market rent for the townhome: $3,400/month New purchase: property with a rental suite generating $1,800/month Down payment: 10% Other debts: student loan $165/month , car loan $500/month How Scotiabank viewed it For the townhome rental, they counted half the rent and subtracted the mortgage payment, leaving an $800/month shortfall that gets added into the debt ratios. For the new purchase, 50% of the suite income gets added to income. Max mortgage : $650,700 Max purchase price : $723,000 How Strive viewed it For the townhome rental, Strive used a rental worksheet and calculated $5.20/month of income that can be added to the application. For the new purchase, 100% of the suite income gets added to income, and they did not need to include taxes or heat. Max mortgage : $878,400 Max purchase price : $976,000 The result That’s a $253,000 difference in purchasing power , with the same clients, same income, same debts, and same properties. The difference was lender policy. Quick Summary GDS and TDS ratios are the backbone of mortgage qualification. Rental income is usually counted using Addback or Offset , and each lender handles this differently. Two lenders can produce wildly different results, even with the exact same file. In the example above, lender choice created a $253,000 swing in purchasing power. Next Steps If you are planning to: Buy a home with a suite Keep your current home and convert it to a rental Use rental income to qualify Reach out and I will run the numbers across multiple lenders so you see what you actually qualify for, not just what one lender will allow. Need help with your mortgage? Book a consultation or call 778-988-8409 . Glossary Addback : A method where a lender adds a percentage of rental income to your gross income for qualification. Gross Debt Service (GDS) : The ratio that measures housing costs as a percentage of gross income. Offset : A method where a lender subtracts a percentage of rental income from the rental property’s mortgage payment for qualification. Total Debt Service (TDS) : The ratio that measures housing costs plus other debts as a percentage of gross income.