Fixed vs. Variable Mortgage Rates: What’s the Difference?

If you’re getting a mortgage, one of the first decisions you’ll make is whether to go with a fixed or variable rate. There’s no one-size-fits-all answer, but understanding how each option works can help you make the right call.

Fixed Mortgage Rates

With a fixed rate, your interest rate and payment amount stay the same for the entire term. This gives you consistency and predictability, which can be a huge benefit if you’re budgeting or don’t like surprises.

Pros:

• Your payment won’t change during the term

• If rates are low, you can lock in and not worry about future increases

• Easier to budget long term

Cons:

• If rates drop, you’re stuck at your current rate unless you refinance

• Breaking a fixed-rate mortgage can come with hefty penalties, especially with a big bank

A Quick Note on Fixed Penalties

If you break a fixed mortgage before the term is up, you’ll usually pay the greater of three months’ interest or something called an Interest Rate Differential (IRD).

IRD is calculated based on your rate versus current rates for the remaining term. Different lenders calculate it differently. Big banks often use posted rates, which can make the penalty worse, while some broker-access lenders tend to use more fair calculations. It’s one of those things that’s easy to overlook, but it can have a big impact if you ever need to break your mortgage early.

Variable and Adjustable Rates

Variable rates are tied to the Prime Rate. If Prime goes up, so does your interest rate. If it drops, you’ll pay less.

There are two types of variable rates:

• Variable with static payments – your payment stays the same, but more or less goes toward interest depending on the rate

• Adjustable rate mortgages (ARMs) – your payment changes when the Prime Rate changes

Pros:

• If rates drop, so does your payment (with ARMs)

• Usually cheaper to break – penalty is usually just three months’ interest

• You can often lock into a fixed rate mid-term without penalty

Cons:

• Your payments can increase if rates go up

• Not ideal if you’re risk-averse or on a tight budget

• Watching rates climb can be stressful if you’re in an adjustable

Final Thoughts

If peace of mind is your top priority, a fixed rate might be the better fit. If you’re comfortable with some fluctuation and want the flexibility to break or refinance easily, an adjustable rate could make more sense — especially if rates are expected to come down.

Whichever you choose, it’s important to understand how your mortgage works. Not all variable-rate mortgages are the same, so be sure to ask whether yours is adjustable or static.

[Click here if you want to go over your options or run some numbers based on your situation.]

Frequently Asked Questions

How do I know if I have a variable or adjustable rate?
Check your mortgage commitment or talk to your broker. Adjustable means your payment changes. Variable with fixed payments means the amount stays the same, but the interest portion changes.

What happens if rates go up and I’m in a variable?
With adjustable rates, your monthly payment goes up. With variable rates with static payments, more of your payment goes toward interest, and less goes toward your principal.

Can I switch from variable to fixed?
Yes, many lenders will let you lock in a fixed rate during your term without penalty. The fixed rate available at the time of switching will apply.