Fixed-rate mortgages, explained plainly
Your rate — and your payment — stay exactly the same for the whole term. Here's how that actually works in Canada, and when it's the right call.
How it works
The rate is locked for your term
Terms in Canada typically run 1 to 10 years, with 5-year fixed being the most common. Whatever rate you sign at is the rate you pay for the entire term — it doesn't move even if the Bank of Canada changes its overnight rate.
Compounding is semi-annual, not monthly
Canadian mortgages are compounded semi-annually by law, unlike U.S. mortgages, which compound monthly. That slightly lowers the effective rate you actually pay compared to the posted rate — your lender's payment quote already accounts for this.
Your payment never changes mid-term
Because the rate is fixed, your principal-and-interest payment is identical every month (or every two weeks, if you choose biweekly) until renewal — no surprises on your statement.
Pros and cons
Pros
- Payment certainty — the same number hits your budget every month
- Full protection if rates rise during your term
- Easier to plan around for a household on a fixed budget
- The most common choice for first-time buyers in Canada
Cons
- Usually starts slightly higher than a comparable variable rate
- Breaking the mortgage early can be expensive — the penalty is the greater of 3 months' interest or the Interest Rate Differential (IRD), and IRD can run into thousands if rates have dropped since you signed
- You don't benefit if rates fall during your term (without refinancing, which itself may trigger a penalty)
Who it's best for
- Buyers who want to know their exact payment for years at a time
- Households on a tighter budget where a rate increase would actually hurt
- Anyone who's fairly confident they won't need to break the mortgage before the term ends
- First-time buyers who'd rather not think about rate movements at all
Common questions
You'll renew — either with your current lender at their offered rate, or by switching lenders if the market has better options. This is exactly the moment it's worth shopping around instead of just signing your bank's renewal letter.