Choosing between a fixed or variable mortgage rate is a big decision for Canadian homebuyers in 2025. A fixed-rate mortgage locks in your interest rate and monthly payment for the term (often 5 years), giving you certainty. A variable-rate mortgage has an interest rate that changes with the Bank of Canada’s prime lending rate, so your payments can move up or down. Both options have pros and cons.
What Is the 2025 Market Snapshot?
Current rates are roughly similar for five-year terms, around 3.8–4%. For example, Ratehub.ca notes that as of mid-2025, the best five-year fixed rate is about 3.84% while the best five-year variable (also called a VRM) is about 3.95%. As of mid-2025, the BoC’s overnight rate is 2.75% (prime = 4.95%). Analysts expect a couple more rate cuts in 2025 (around 50 bps total), which would mainly lower variable mortgage rates.
Pros of Fixed Rates:
- Payment predictability: Your monthly principal and interest stay the same for the term, so budgeting is easy. You know exactly what you will pay each month.
- Protection if rates rise: If market interest rates go up, your locked-in rate means your payments won’t increase (until renewal).
- Long-term payoff clarity: You can predict exactly how long it will take to pay off the mortgage under your fixed rate.
(For example, use our Mortgage Payment Calculator to see how a fixed rate locks in your monthly payment.)
Cons of Fixed Rates:
- Usually, a higher starting rate: Fixed rates often begin higher than variable rates. You might pay a bit more interest at first.
- No benefit from rate drops: If the BoC cuts rates, your fixed rate stays the same. You’d have to refinance or wait until renewal to get a lower rate.
- Penalties to break: Leaving or refinancing a closed fixed mortgage early can mean hefty penalties, which can erase savings.
Pros of Variable Rates:
- Potentially lower rates if the economy cools: With further rate cuts likely, variable rates could drop. Analysts predict they might fall 0.5–0.75% in 2025, far more than fixed rates, which would reduce your interest payments.
- Flexibility and lower fees: Variable mortgages often have lower prepayment penalties (around 3 months’ interest). RBC points out that they let you “take advantage of falling interest rates” and convert to a fixed rate at any time.
- Savings opportunity: If rates do drop, a variable-rate borrower can pay less over time. Many borrowers historically save money when variable rates decline.
- Easy to switch: Starting with a variable mortgage means you can later switch to a fixed plan easily (often without a new appraisal).
Cons of Variable Rates:
- Unpredictability: If economic conditions change, variable rates can rise, and your payments could increase. You must be ready for some uncertainty.
- Payment uncertainty: Even if your payment amount stays the same, you’ll pay more interest if rates climb (meaning less principal is paid).
- Cost advantage may not be immediate: Right now, the cheapest variable rates are very close to fixed rates. NerdWallet cautions that until variable rates fall further (about 0.5%), their payments could actually be higher than fixed payments.
- Porting restrictions: If you sell or move, you might have to convert your variable mortgage to a fixed one when you port it, which could change your rate.
Which Is Better For You?
There’s no one-size-fits-all answer. Fixed rates suit borrowers who value certainty and plan to stay put. Variable rates may work for those expecting rate drops and who can handle some ups and downs.
Try Mortgage Squad’s online tools to compare. If you’re renewing or switching, check our Mortgage Refinance Calculator for current offers. You can also compare scenarios with the Mortgage Payment Calculator or the Mortgage Affordability Calculator.
Conclusion:
Both fixed and variable rates are viable in 2025, depending on your needs. Fixed offers peace of mind; variable offers flexibility and potential savings. To find the best fit, consult Mortgage Squad’s experts. We’ll shop top lenders and get you a great rate. Ready for personalized advice? Schedule a free consultation or contact us today!