Fixed-Rate Mortgage

A fixed-rate mortgage is a mortgage whose interest rate and scheduled payment stay the same for the whole term, so the borrower knows exactly what each payment will be from the first one to the last. The rate is set when the mortgage is approved or renewed and does not move with the Bank of Canada's policy rate or the lender's prime rate.

How a Fixed Rate Works in Canada

When a lender commits to a fixed rate, that rate applies for the entire mortgage term, which is commonly five years but can run from under a year to ten years or more. The amortization period — how long it would take to clear the balance at the current payment — is normally longer than the term. At the end of the term the remaining balance is either paid off or renewed at whatever rate is then available.

Because the payment is constant, the mix inside it changes. Early payments are mostly interest; later payments are mostly principal. Canadian fixed-rate mortgages typically compound interest semi-annually, not in advance, and most fixed-rate products are closed, which means extra payments are limited to the prepayment privileges written into the contract.

Why Borrowers Choose a Fixed Rate

• Payment certainty: the amount is known in advance, which makes household budgeting simpler.
• Protection from rate increases: if rates rise during the term, the payment does not change.
• The trade-off: if rates fall, the borrower does not automatically benefit, and leaving the term early usually costs money.
• Qualification: a level payment is straightforward for a lender to measure against GDS and TDS ratios.

Fixed-rate borrowers still face the federal mortgage stress test and OSFI Guideline B-20, which require lenders to confirm a borrower could handle payments at a qualifying rate above the contract rate — typically the contract rate plus a buffer, or a published minimum, whichever is greater. Leaving a fixed term early usually triggers a prepayment penalty, often the greater of three months' interest or the interest rate differential.

Fixed versus Variable at a Glance

A variable-rate mortgage moves with prime rate, so payments or interest costs can rise and fall. A fixed rate trades that flexibility for predictability, which is why the choice usually comes down to how much certainty a household needs. The fixed vs variable guide walks through how to weigh the two.