Fixed vs Variable Rate Calculator

What the Fixed vs Variable Calculator does

It refuses to forecast. Instead of picking a rate path and dressing it up as analysis, it prices your actual mortgage across five of them — down a point, down half, unchanged, up half, up a point — and shows what each product costs under every one. You supply the view; the arithmetic is done for you.

It also surfaces two things most comparisons skip. The trigger rate is where a fixed-payment variable stops covering its own interest and the balance starts growing — the thing that caught a great many Canadian borrowers in 2022 and 2023. And the penalty gap between the two products has real money in it if there is any chance you break the term early, which has nothing to do with the rate at all.

• Five rate paths priced, none presented as likely
• The trigger rate, and how much room you have above it today
• The rate move that would flip the answer, solved rather than guessed
• What breaking each product costs halfway through the term
• The payment range on an adjustable variable, which total interest hides

The two kinds of variable, and why it matters enormously

People say "variable" as though it were one product. It is two, and they behave very differently when rates move.

An **adjustable** variable recalculates your payment every time prime moves. Rates up, payment up; rates down, payment down. Your amortization stays on schedule and the balance always falls. The risk is entirely cash flow: you have to be able to absorb a bigger payment on short notice.

A **fixed-payment** variable keeps the payment the same and changes the split between interest and principal instead. It feels stable, which is the point. But if rates rise far enough, the payment no longer covers the interest — and the balance starts growing. That is the trigger rate, and it is the single genuinely asymmetric risk in this whole comparison. An adjustable variable cannot reach it, because it re-prices instead.

Both are sold as "variable". Ask which one you are being offered.

• Adjustable: the payment moves, the amortization holds, no trigger risk
• Fixed-payment: the payment holds, the amortization moves, trigger risk is real
• The trigger is where payment equals interest and the balance stops falling
• It rises as your balance falls, so the figure here is the strict case
• Ask your lender which structure you are actually signing

The penalty gap nobody mentions

Breaking a variable-rate mortgage almost always costs three months’ interest. That is the whole calculation.

Breaking a fixed-rate mortgage costs the greater of three months’ interest and an interest rate differential — and where the differential bites, on a large balance with years left, it runs to many times the variable figure. Big banks make it worse by using their posted rate less your original discount as the comparison, which is generally the largest penalty a Canadian borrower will meet.

This is a real difference with a dollar value, and it has nothing to do with which rate is lower. If there is any genuine chance you move, sell or refinance mid-term, it belongs in the decision. If you are certain you will see the term out, it does not.

Worth noting the gap runs the other way sometimes. When the fixed differential does not bite, both products fall back to three months’ interest — and three months at the higher variable rate can cost slightly more. The page shows which way it falls on your numbers rather than assuming.

• Variable: three months’ interest, essentially always
• Fixed: the greater of three months’ interest and the differential
• A big bank’s posted-rate differential is usually the largest penalty going
• The gap only matters if you might actually break the term
• It occasionally favours fixed, and the page says so when it does

How this is actually calculated

The fixed path is deterministic — a constant rate compounded semi-annually as the Interest Act requires, giving a level payment and a predictable balance at any point. The variable path is simulated month by month at monthly compounding, with each scenario’s rate change phased in over the first year of the term and held from there. That is a transparent path, not a forecast, and it is described as such everywhere it appears.

Comparing total interest between the two is fair here, and it is worth saying why, because the same comparison is misleading elsewhere. Cost is properly the cash you part with plus the balance you still owe, less what you started owing — and since both paths start from the same principal, that reduces to the interest on each side. The closing balances do differ, and the identity already accounts for it.

What interest does not capture is cash flow. An adjustable variable in a rising scenario demands a bigger payment every month, so the payment range is shown alongside. The trigger rate is solved directly: payment × 12 ÷ balance is the rate at which interest exactly equals the payment. The break-even rate move is found by bisection on the scenario delta.

• Fixed: i = (1 + r ÷ 2)^(2 ÷ 12) − 1, constant payment
• Variable: i = r ÷ 12 each month, re-priced payment or held payment
• Trigger rate = payment × 12 ÷ balance
• Break-even: bisection on the rate move where the two costs meet
• Penalties use the same engine as the break and blend calculators

Using your results well

Read all five rows, not the one you expect. The grid exists so the decision does not rest on a single guess, and the honest answer to "which is better" is usually "it depends on something neither of us knows."

If you are considering a fixed-payment variable, compare your buffer above the trigger rate against realistic near-term moves. A buffer smaller than a point is not much of a buffer.

And ask about conversion before you need it. Most lenders let you move from variable to fixed mid-term without the full breaking penalty, at their rates of the day. That option has value, it is not automatic, and the terms vary — knowing them in advance is worth more than any view about where rates are heading.

• Read every scenario, not just the one you find plausible
• Check your buffer above the trigger if considering a fixed-payment variable
• Weigh the penalty gap seriously if you might break the term
• Ask about mid-term conversion terms before you want them
• On an adjustable, ask yourself whether you could absorb the worst payment shown