A 25 Basis Point Hike Doesn't Erase Variable's Long-Run Edge Over Fixed

Picture an Edmonton household with an adjustable-rate mortgage the morning after a 25-basis-point increase. A basis point is one-hundredth of a percentage point, so 25 of them means 0.25 percentage points. On an illustrative $400,000 balance, that adds about $1,000 a year in interest ($400,000 × 0.25%). The household budget stays the same size, and the mortgage takes a bigger piece of it. That cost is real. It still tells you only part of what each mortgage will cost you over the years you hold it.

You've probably done this yourself: two quotes side by side, the variable one lower, and a nagging worry that the cheaper option could leave you scrambling to cover a bigger payment later. Fixed feels safe but maybe overpriced. Variable looks cheaper but feels exposed. Your actual decision comes down to one fact: the cheaper mortgage depends on costs across the whole time you keep it, and one rate announcement doesn't settle that.

What a 0.25-point rate hike changes for each type of mortgage

The Bank of Canada sets a target for the overnight rate. It doesn't set your mortgage rate. When the target moves, lenders typically adjust their prime rate, and floating mortgages are priced off prime. The same 0.25 points then lands differently depending on what you signed.

With an adjustable-rate mortgage, your payment rises to cover the higher interest. You feel it in your chequing account right away, and your repayment schedule stays on track.

With a fixed-payment variable mortgage, your payment stays put. More of it goes to interest and less to principal, so the balance shrinks more slowly. Your budget doesn't feel the hike, but your loan does. If rates climb far enough, the payment can reach a trigger point where it no longer covers the interest. Your contract then spells out what happens, often a higher payment or a lump sum. This structure delays the pressure. It can still arrive.

A fixed-rate mortgage doesn't move at all during the term. The 0.25 points matter only at renewal, when you'll face whatever rates are on offer then.

So a hike carries a different risk for each one. Adjustable puts it in your monthly cash. Fixed-payment variable puts it in your balance and your timeline. Fixed pushes it to renewal.

When variable can save more, and when fixed is worth paying for

To compare fairly, give both offers the same job: the same loan amount, the same amortization and the same holding period. Then ask what each one costs in total interest if rates rise, stay level or fall. A lower payment in month one doesn't prove you'll save money.

Fixed pricing can include a charge for certainty, because the lender carries the rate risk for you. Variable doesn't always start cheaper, but when it does, that gap gives you room to absorb some increases before fixed comes out ahead.

Then look at leaving early. First-time buyers often stay put. Move-up buyers and investors frequently sell or refinance before the term ends. A closed variable mortgage generally charges three months' interest to break. On an illustrative $400,000 at 3.7%, that's about $3,700. A closed fixed mortgage commonly charges the greater of three months' interest or an interest rate differential, which is based on the gap between your rate and the lender's current rate for the time left on your term. Depending on your contract, that can cost far more. If there's a real chance you'll move within a few years, that difference can outweigh the rate gap entirely.

Those features give variable potential savings. No one can promise it wins every cycle, because that depends on where rates go. Potential savings also don't pay bills. If a higher payment would squeeze groceries or leave investment properties short each month, the cheaper-on-paper option is the wrong one for you. Qualifying under the stress test (the higher of your contract rate plus 2% or 5.25%) means a lender accepted the risk. It doesn't mean your budget will feel comfortable.

The 0.25-point hike changed the math. It didn't make the choice for you. Payment certainty and the lowest final cost are two different benefits, and you can decide which one your household needs most. Put your two real offers side by side and ask for a same-period comparison that includes a higher-rate scenario and the cost of an early exit.