Choosing between a fixed or variable mortgage is one of the biggest decisions you’ll make when buying or refinancing a home. In Canada’s 2025 market — with interest rates, inflation, and housing prices all in the spotlight — the right choice can save you thousands.

With over $150M in mortgages funded, I’ve helped hundreds of clients weigh the pros and cons of each option based on their budget, goals, and market conditions. In this post, we’ll break down what you need to know in 2025 to make an informed choice.

1. What is a Fixed-Rate Mortgage?

A fixed-rate mortgage has an interest rate that stays the same for the entire term (commonly 1–5 years in Canada).

Pros:

• Predictable payments for the entire term

• Easier budgeting and planning

• Protection against interest rate increases

Cons:

• Higher starting rate compared to some variable options

• Larger penalties if you break the mortgage early

• Less flexibility if rates drop

2. What is a Variable-Rate Mortgage?

A variable-rate mortgage has an interest rate that changes with the lender’s prime rate, which is influenced by the Bank of Canada’s policy rate.

There are two main types in Canada:

• Adjustable Rate Mortgage (ARM): Payment changes when the rate changes

• Variable Rate with Fixed Payment: Payment stays the same, but more or less goes toward interest/principal depending on rates

Pros:

• Historically, variable rates have averaged lower than fixed rates

• More flexibility to take advantage of rate drops

• Lower penalties if you break the mortgage early

Cons:

• Payments can increase if rates rise

• Harder to budget with certainty

• Rate fluctuations may cause stress

3. The 2025 Interest Rate Environment in Canada

As of early 2025:

• The Bank of Canada has kept rates elevated to manage inflation, but small rate cuts are possible later this year

• Fixed mortgage rates remain slightly higher than some variable rates, but the gap is narrower than in previous years

💡 Why this matters:
If rates are expected to drop, variable could be appealing. If stability is more important, fixed offers peace of mind.

4. Comparing Costs: Fixed vs Variable in 2025

Example Scenario:

• Mortgage amount: $500,000

• 25-year amortization

Fixed (5-year term @ 4.79%)

• Payment: $2,849/month

• Total interest over 5 years: ~$115,000

Variable (5-year term @ 4.55%)

• Payment: $2,770/month (adjustable)

• If rates drop by 0.50% in year 2, payments drop to ~$2,700/month

• If rates rise by 0.50%, payments increase to ~$2,840/month

5. Breaking a Mortgage: Why It Matters

Life happens — and breaking a mortgage early can be expensive.

• Fixed Rate Penalty: Usually the greater of 3 months’ interest or Interest Rate Differential (IRD) — which can be thousands more

• Variable Rate Penalty: Usually just 3 months’ interest — much cheaper

💡 If you think you might sell, refinance, or pay down your mortgage early, variable could save you in penalties.

6. Who Should Choose Fixed in 2025?

A fixed mortgage might be right for you if:

• You want stable, predictable payments

• You’re risk-averse and prefer certainty

• You believe rates are more likely to rise than fall

• You plan to keep the mortgage for the full term

7. Who Should Choose Variable in 2025?

A variable mortgage might be right for you if:

• You’re comfortable with some payment fluctuation

• You believe rates may drop during your term

• You want lower penalties if you break the mortgage early

• You can handle potential short-term increases in payments

8. Hybrid Mortgages: The Middle Ground

A hybrid mortgage splits your mortgage into part fixed, part variable — giving you some stability and some flexibility.

• Example: $300k fixed, $200k variable on a $500k mortgage

This can work well for clients who want to hedge their bets in uncertain markets.

9. My Process for Helping Clients Decide

When clients ask me whether to go fixed or variable, I look at:

• Income stability

• Risk tolerance

• Future plans (selling, upgrading, refinancing)

• Market forecasts and lender promotions

No two situations are the same — and the right choice for your neighbour may be the wrong one for you.

Final Word: Fixed vs Variable in 2025

In Canada’s 2025 market, the decision comes down to certainty vs. potential savings.

Not sure which is right for you?
I’ll run the numbers for your exact situation and show you the 5-year cost difference between fixed and variable — so you can decide with confidence.

📞 Book a Call