Rates and interest
Fixed rate
An interest rate that stays the same for your whole term, compounded semi-annually as the Interest Act requires.
A fixed rate locks your interest rate and your regular payment for the whole term. It's the most common choice in Canada, and the usual pick if you value a predictable payment over a possible saving.
Fixed rates are priced off the bond market (the 5-year Government of Canada yield plus a lender spread), and the Bank of Canada's policy rate doesn't set them. That's why a fixed rate can move the week before an announcement and stay put after one.
Section 6 of the federal Interest Act requires any annual rate stated for a mortgage on real property to be calculated with semi-annual, not-in-advance compounding. So a Canadian 4.09% isn't the same as an American 4.09%, and every payment on this site is calculated the Canadian way.
The cost of that certainty comes when you leave early. Breaking a fixed term costs the greater of 3 months of interest or the interest-rate differential, which is often far more than the 3 months of interest a variable costs.
Related terms
Variable rate
A rate set as prime plus or minus a discount, which moves when prime moves while your discount stays locked for the term.
Term
How long your current mortgage contract and rate last, usually 1 to 5 years, which is different from the amortization.
Interest-rate differential (IRD)
A prepayment penalty calculated from the gap between your rate and a comparison rate, applied over the months left in your term.
This definition describes how the term is used in Canadian residential mortgage lending. It’s general information, not advice on your file. Rules, thresholds and rates change. Where a figure is quoted, it’s current as of the date shown on the related guide.
Sharp rates. The full picture.
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