Fixed vs. Variable Mortgages: Which One Is Right For You In 2025?

20 Feb, 2025Fixed vs. Variable Mortgages

Choosing between a fixed-rate and a variable-rate mortgage is a big decision, especially with the recent changes in Canada’s banking and real estate sectors. Whether you’re a homeowner or buyer, with interest rates shifting rapidly, you must weigh your options carefully to find the best fit for your financial future in 2025.

Recent Mortgage Market Changes To Consider

In October 2024, the Bank of Canada made an unexpected 50 basis point cut, bringing the benchmark policy interest rate down to 3.75%. This move has led many Canadian homeowners to consider switching from fixed-rate to variable-rate mortgages to take advantage of potential savings.

Additionally, as of November 21, 2024, Canada’s banking regulator introduced a new rule that makes it easier for mortgage borrowers to switch lenders upon renewal.  Borrowers no longer need to prove their income meets the Minimum Qualifying Rate when making a 'straight switch’, increasing flexibility and refinancing options.

And, the latest dandling of interest rates by BOC has made the prime rates drop from, an altogether peak of 7.20% to 2.0%. 

Fast forward to January 29, 2025, and the BoC announced its sixth consecutive rate cut, reducing the policy rate by 0.25 percentage points to 3%

With rates steadily declining, many Canadians are wondering: Should I lock in a fixed rate or take advantage of lower variable rates?

If the facts and figures feel overwhelming to you, let’s simplify the difference between fixed and variable rate mortgages.

Fixed-Rate Mortgages: Stability Over Savings?

A fixed-rate mortgage offers a constant interest rate throughout the loan term. This stability ensures predictable monthly payments, which can be comforting if you prefer consistency in your budgeting.

To put it more simply, a fixed-rate mortgage locks in your interest rate for the entire term, meaning your monthly payments stay the same. This makes budgeting easier and removes the worry of sudden rate hikes.

However, fixed rates are usually higher than variable rates at the start. If market rates drop, you won’t see any savings unless you refinance—which comes with extra costs.

Pros:

  • Predictable payments = No surprises in your budget.
  • Protection against rising interest rates.

Cons:

  • Fixed rates are usually higher than variable rates at the start.
  • If interest rates drop, you won’t benefit unless you refinance—which comes with extra costs.

A fixed-rate mortgage is ideal if you prefer stability and want to avoid financial uncertainty.

Variable-Rate Mortgages: Risk vs. Reward


A variable-rate mortgage is tied to the Bank of Canada’s benchmark rate, which means your payments can go up or down over time. Initially, these rates are usually lower than fixed rates, offering the potential for savings.

The catch? If interest rates rise, so will your payments. Meaning, interest rates will fluctuate based on the Bank of Canada's decision. So, as rates change, monthly payments can increase or decrease, leading to an element of uncertainty.

However, there’s an alternative to both. Some lenders offer “fixed-payment variable mortgages” (where your payment amount stays the same but the portion going toward interest increases), you could still end up paying more in the long run.

Pros:

  • Lower initial interest rates = Potential savings.
  • If rates continue to drop, you could pay less over time.

Cons:

  • Payments can increase if interest rates rise.
  • Budgeting can be unpredictable.

So, Which Mortgage Type Should You Choose?

Truth be told, there will always be an ‘if’ either way. There’s no universal right answer—it depends on your financial situation and risk tolerance. Consider the following factors:

  • Risk Tolerance: Do you prefer the certainty of fixed payments, or are you comfortable with potential fluctuations? If a rate hike would strain your budget, a fixed-rate mortgage may be safer. 

  • Market Outlook: With ongoing rate cuts, variable mortgages might offer better short-term savings. But if rates start climbing again, a fixed-rate mortgage could provide long-term protection.

  • Financial Flexibility: Can your budget handle a potential increase in mortgage payments? If you have a substantial financial cushion, you may benefit from a variable rate. Otherwise, a fixed-rate mortgage provides peace of mind.

    For example, if the BoC’s latest rate cut is an attempt to offset economic risks, choosing a variable rate can be a calculative risk for mortgage payers to take for. 

The Bottom Line

Interest rate cuts can be tempting, and is a tricky game too. There’s no one-size-fits-all answer when it comes to fixed vs. variable mortgages. The right choice depends on your financial situation, risk tolerance, and market conditions. 

Before making a decision, talk to a mortgage expert who can assess your situation and guide you toward the best option.

Both fixed and variable-rate mortgages have their pros and cons. Since borrowing is dipping, the impending benefits might feel lucrative. But don’t jump if you don’t know how to swim. 

Not sure which mortgage suits you best? Let’s talk! Our team of mortgage professionals can help you make an informed decision.

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