Don’t choose based on a prediction
Put both offers to work
Look at the starting payment, then test an increase. Check how you convert to fixed, how the penalty is calculated, and what happens if you sell before maturity.
- The monthly increase you can absorb
- The penalty, which differs from one contract to the next
- A possible sale or early repayment
When the budget is already tight
A worked example
A $400,000 loan over 25 years. Fixed is offered at 4.9%, variable at prime minus 0.9%, or 4.3% today. Payments: about $2,300 and $2,165 a month. If prime rises 1.5 points during the term, the variable moves to 5.8% and the payment to about $2,505, $200 more than the fixed. If it falls 1 point, the variable drops to 3.3% and the payment to $1,955. The question is not to guess which will happen: it is whether $2,505 a month fits your budget without dipping into the reserve. If yes, variable is on the table; if not, the stability of the fixed rate is worth its starting gap.
When it does not apply
If you expect to sell or refinance within two years, the penalty weighs more than the rate: three months of interest on a variable against a possibly heavy rate differential on a fixed, which can settle the question on its own. An insured loan or a first purchase with an already tight budget leaves little room for an increase: the comparison is quick. And some variable products with a fixed payment hide the risk in the amortization rather than the instalment; the trigger rate brings the question back later.
The trigger rate, plainly
There are two kinds of variable. In the first, the payment moves with the rate: every increase shows up on the next payment, and you feel the effect right away. In the second, the payment stays fixed for the term; when the rate rises, a larger share of the payment goes to interest and a smaller share to principal. If the rate rises enough, the payment no longer even covers the interest: that is the trigger rate. At that point the lender asks you to raise the payment, make a lump-sum payment or, under some contracts, lets the balance grow up to a limit. Your amortization stretches without you signing anything. The fixed payment is reassuring, but it hides the risk instead of removing it. Before choosing a variable, ask which of the two you are being offered, where your trigger rate sits, and what happens the month it is reached.
How Mathieu can help
Sources and review
FCAC — Choosing a mortgage. Reviewed August 12, 2026.