What you are actually choosing
A fixed rate is a price for certainty: the payment does not move for the term, whatever happens. A variable rate floats with the lender's prime rate, and historically borrowers who rode variables paid less over long periods, with some genuinely painful stretches in between. You are not picking the cheaper option. You are picking which risk you would rather hold.
The penalty difference is the quiet giant
Breaking a variable mortgage costs about three months interest. Breaking a big-bank fixed mortgage can cost several times that because of the interest rate differential. Life changes, moves, separations, job transfers, are more common than anyone plans for. If there is any real chance you break the term early, that penalty asymmetry matters more than the rate gap.
- Variable penalty: roughly three months interest
- Fixed penalty: the greater of three months or the differential
- Ask for both penalty estimates in writing before deciding
Can your budget absorb the top of the range?
Take the current variable payment and add two percent to the rate. If that payment would force real hardship, a fixed rate is not a luxury, it is insurance you need. If the higher payment is merely annoying, the variable's long-run savings are available to you.
Shorter fixed terms are the underrated middle
A two or three year fixed often prices close to a five year, keeps your options open, and limits how long a wrong guess can hurt you. For buyers unsure about their five year plans, a short fixed term is frequently the most sensible compromise on the table.
Make the decision once, properly
Write down your real five year plan, your honest budget ceiling, and your penalty exposure. The right answer usually becomes obvious on one page. Then stop watching rate headlines for the length of the term, because the decision is made and the headlines exist to sell advertising, not to help you.
Frequently asked questions
- Can I switch from variable to fixed mid-term?
- Usually yes, by locking in with the same lender for at least the remaining term. The lock-in rate offered is rarely the most competitive, so treat it as an exit hatch, not a strategy.
- Do variable payments rise immediately when prime rises?
- Depends on the product. Adjustable-rate mortgages change the payment. Fixed-payment variables keep the payment steady and adjust the interest-principal split instead, which can quietly extend your amortization.
- Is a hybrid mortgage worth it?
- Part fixed, part variable splits the decision both ways. For some households that is genuine balance; for others it is just paying for two decisions instead of making one.