The real difference between a fixed and a variable mortgage in Canada isn’t today’s rate — it’s what moves your payment, and what it costs to leave. Variable rates follow your lender’s prime rate (driven by the Bank of Canada), while fixed rates are set by the bond market; variable penalties are usually three months’ interest, while fixed penalties use an interest-rate-differential calculation that can be far larger. Choose on payment behaviour and exit cost first, and the rate second.

What actually moves each rate?

Variable: your rate is prime minus (or plus) a spread. Prime is currently 4.45%, because the Bank of Canada’s policy rate is 2.25% — and the Bank’s next decision is October 28. If the Bank moves, most variable rates move within days. Some variable mortgages have payments that rise and fall with prime; others hold the payment steady and change how much of it goes to interest — know which kind you’re being offered. See how a Bank of Canada move hits variable borrowers first.

Fixed: your rate is locked for the term, but it’s priced off Government of Canada bond yields, not the Bank of Canada. That’s why fixed rates climbed through September 2026 while the policy rate never moved — and why a Bank of Canada hold on October 28 wouldn’t automatically make fixed rates cheaper.

Which one costs more to break?

This is where the two products genuinely separate:

• Variable (closed): the penalty is typically three months’ interest on the balance — predictable, and usually modest.
• Fixed (closed): the penalty is the greater of three months’ interest or the interest rate differential (IRD) — a calculation based on the difference between your contract rate and current rates for the remaining term. When rates have fallen since you signed, IRD penalties can reach into five figures on a mid-size mortgage.

Life changes — a move, a sale, a separation, a refinance — break more mortgages than rate predictions do. If there’s a real chance you’ll sell or refinance inside the term, the penalty column matters more than a small rate difference. (Thinking of renewing instead of breaking? Run a Mortgage Renewal Check before signing anything.) See three months’ interest vs IRD: which penalty you’d actually pay.

“The team at NextDoor Mortgages (Mei & Travis) are the absolute best… provided the help I needed in securing my mortgage.” — Yomi Odusanya, Google review

So which suits you — fixed or variable?

Fixed tends to suit borrowers who need a payment that cannot change (tight monthly budget, first purchase, fixed income), and anyone who is confident they’ll stay in the home and the mortgage for the full term.

Variable tends to suit borrowers with payment room to absorb a rise, a shorter expected stay in the mortgage (where the three-months’-interest penalty protects them), and the temperament to ignore rate headlines between Bank of Canada decisions. See open vs closed: the prepayment privileges that decide flexibility.

Either way, the pre-approval stage is where this gets decided properly — with your income, your timeline, and a rate hold protecting you while you shop. My Pre-Approval & Refinance Check covers exactly that review, and first-time buyers can see the full sequence in the First Home Guide for Edmonton.

Renewing or buying before the October 28 decision? Call me and we’ll compare fixed and variable on your actual balance and timeline — payment, penalty, and flexibility — not just the headline rate.

By Travis Bannert, Realtor and Mortgage Broker

Travis Bannert, Mortgage Broker | Next Door Mortgages, Dominion Lending Centres | (780) 722-5621 | nextdoormortgages.com