Posted On Sep 19, 2025

Fixed vs. Variable Mortgages: Which One’s Right in the Fall of 2025?

For the better part of two years, the conversation around mortgages was simple: lock in a fixed rate and brace for impact. But here we are in the fall of 2025, and the winds have shifted. With the Bank of Canada making a modest rate cut (with a couple of more cuts predicted), variable rates are starting to look attractive again, often dipping below their fixed-rate counterparts.

If you’re buying a home or facing a renewal in the GTA, you’re likely staring at this choice and wondering: have I missed the boat on fixed rates, or is now the time to jump on the variable train?

The truth is, there’s no single right answer, but there is a right answer for you. Let’s break it down.

The Case for Variable-Rate Mortgages

A variable-rate mortgage is tied to your lender’s prime rate, which moves in lockstep with the Bank of Canada’s policy rate.

  • The Pro: Potential for Savings. This is the big one. With economists forecasting further rate cuts into 2026, choosing a variable rate today could mean your interest costs will decrease over the next year or two. This can lower your payments (if you have an adjustable-rate mortgage) or help you pay off more principal faster (with a standard variable-rate mortgage).
  • The Pro: Lower Penalties. Life happens. If you need to break your mortgage early, the penalty on a variable-rate mortgage is almost always just three months' interest. On a fixed-rate mortgage, the penalty can be a much more painful Interest Rate Differential (IRD) calculation, potentially costing you tens of thousands of dollars.
  • The Con: The Risk of Uncertainty. While the forecast is for rates to fall, it’s not a guarantee. Geopolitical events or stubborn inflation could cause the Bank of Canada to pause or even reverse course. You need to have the risk tolerance and budget flexibility to handle potential increases in your payment.

The Case for Fixed-Rate Mortgages

A fixed-rate mortgage locks in your interest rate for the entire term (typically 3 to 5 years). Your payment remains the same, no matter what happens in the market.

  • The Pro: Stability and Peace of Mind. This is the ultimate "set it and forget it" option. You know exactly what your mortgage payment will be every month for the life of your term. This predictability is invaluable for budgeting and financial planning, especially for first-time buyers or families on a tighter budget.
  • The Pro: Security in a Volatile World. While rates have moved around a bit and the very low rates available during the pandemic seem to be a distant memory, they are still historically low. Locking in a 5-year fixed rate today secures you against any unforeseen market volatility. You won’t have to think about interest rates again until 2030.
  • The Con: Potentially Higher Cost. You pay a premium for predictability. If rates do continue to fall as predicted, you could end up paying more in interest over your term compared to someone with a variable rate. You're essentially buying insurance against rate hikes.

A Quick Cost Comparison

Let’s imagine a $700,000 mortgage.

  • A 5-year fixed rate might be offered at 4.09%.
  • A 5-year variable rate might be offered at Prime (4.70%) minus 0.55%, for a current rate of 4.15%. Wait, that's higher!
  • BUT, if the Bank of Canada cuts its rate by 0.50% over the next 12 months, that variable rate would drop to 3.65%, putting you ahead of the fixed rate for the remainder of your term.

The decision hinges on your belief in the forecast and your comfort with that "what if" scenario.

The Bottom Line

Choosing between fixed and variable isn't just about math; it's about your financial personality.

  • Choose variable if: You have a stable income, a healthy financial cushion, and the stomach to handle potential fluctuations for greater long-term savings.
  • Choose fixed if: You value predictability, are on a tight budget, or simply want the peace of mind that comes from knowing your largest expense is locked in.

The Toronto market is complex, and your mortgage should be a tool that helps you succeed, not a source of stress. If you're weighing your options, let's talk. We can run the numbers based on your specific situation and find the solution that lets you sleep at night.

Let's connect!

Ready to discuss your home ownership goals and a Better Mortgage by Dom?

 

«