Fixed vs variable mortgage in Canada
A fixed-rate mortgage in Canada locks your interest rate for a term (typically 5 years) regardless of what the Bank of Canada does. A variable-rate mortgage floats with the lender’s prime rate, which tracks the BoC overnight rate. Studies covering 1950 to today (including work by Moshe Milevsky) show variable beat fixed roughly 70 to 90% of the time in Canada. The catch is volatility: variable holders saw payments jump 40%+ between 2022 and 2023.
On a $600,000 mortgage with a 25-year amortization, a 5-year fixed at 5.0% means about $3,489 a month. A variable starting at 5.5% means about $3,668 a month today. If the BoC cuts 1.5% over the term (a plausible base case), the average variable rate ends near 4.0%, saving roughly $20,000 over the term. If it instead rises 1%, fixed wins by similar amounts. The discount you pay for certainty is real.
Picking variable because ‘variable always wins’ without a budget that can absorb a 2% rate jump. The 2022 to 2023 rate shock pushed thousands of variable holders into trigger rates with payments they could not afford. Know your worst case before you sign.
A 60-second lesson on this, with a worked drill, lives inside the Finlo app. Free, forever, on the basics.