The simple difference between the two

A fixed rate stays the same for the entire term. A variable rate can move up or down as interest rates change.

That’s the core difference — but each option affects payments, flexibility, and long-term costs in different ways.

How fixed rates work

Fixed rates offer certainty. Your payment doesn’t change, which makes budgeting simple and predictable.

  • Payments stay exactly the same
  • Well suited to families who value stability
  • Higher penalties if you break the mortgage early
  • Rates are usually slightly higher than variable

How variable rates work

Variable rates move as interest rates change. When rates fall, your interest cost can drop. When rates rise, costs increase.

  • Historically lower interest costs over long periods
  • More flexibility and lower break penalties
  • Payments may change depending on lender structure
  • Requires comfort with some uncertainty

The two types of variable mortgages

Not all variable mortgages behave the same way:

  • Adjustable-rate: payment changes as rates move
  • Fixed-payment variable: payment stays the same, but interest vs principal shifts

Many families prefer fixed-payment variables because the monthly amount feels stable.

Penalties: the most overlooked difference

Breaking a mortgage early can cost thousands. A simple rule of thumb:

  • Fixed rate: often large penalties based on interest rate differentials
  • Variable rate: usually a simple three-month interest penalty

This matters if you may move, refinance, or restructure debt.

Which option works best for most families?

  • Choose fixed if stability matters more than potential savings
  • Choose variable if flexibility matters more than certainty
  • Split the mortgage if partners prefer different approaches

A quick family-focused decision guide

  • Payment changes would cause stress → lean fixed
  • You may move or refinance → lean variable
  • You’re okay with some uncertainty → variable
  • You want predictable budgeting during childcare years → fixed

Quick reminder: This guide is educational only and can’t account for your full financial picture. A mortgage professional can help tailor decisions to your situation.

Want to see how rate changes affect your mortgage?

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See how interest rates, extra payments, and amortization interact using the Mortgage Booster.

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