Variable or fixed rate in 2025: which is the better choice in the real estate market?
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Variable or fixed rate in 2025: which is the better choice in the real estate market?
Main information:
Variable rates on the rise: In 2025, 20% of new mortgages will be variable-rate, a marked return after several years of fixed-rate predominance.
Key rate cuts: The Bank of Canada has begun a gradual reduction in rates, making variable rates more competitive for borrowers.
Fixed rate = stability: Securing a fixed rate locks in your monthly payments and avoids market fluctuations.
Variable rate = flexibility: Allows you to take advantage of rate cuts without renegotiation, but involves a certain amount of risk if rates rise.
The choice depends on your profile: investors, first-time buyers or long-term buyers will have different strategies depending on their risk tolerance and objectives.
Consult an expert: A personalized analysis with a mortgage broker is essential to choosing the best option for your situation and market trends.
Time needed: 8 minutes
Understand interest rates in 2025 before you choose
What is a variable rate?
What is a fixed rate?
Variable or fixed rate: what to choose in 2025?
In 2025, the Canadian real estate market is marked by changing dynamics, influenced by the Bank of Canada’s interest rate decisions. After successive rate hikes over the past few years, the Bank of Canada is beginning to ease rates, leading to adjustments in borrowers’ mortgage strategies.
With the gradual fall in the key rate and the return of variable rates, the question arises: should you secure a fixed rate to guarantee stability, or opt for a variable rate to benefit from future rate cuts?
In this article, we take a closer look at the differences between fixed and variable rates, their respective advantages and disadvantages, and real estate market trends for 2025.
Through an approach based on recent data and expert advice, we help you choose the best option for your real estate project.
Kyle deciphers mortgage rate trends in 2025 and the return of variable rates.
Understanding interest rates in 2025 before making your choice
Why is this choice so crucial today?
Since 2022, interest rate rises have pushed the majority of borrowers towards fixed rates, considered more secure. But in 2025, the situation changes:
Key interest rates are beginning to fall, and many analysts expect this trend to continue in the coming quarters.
Variable rates are once again a competitive option, with some financial institutions offering lower rates than fixed ones.
New real estate market conditions are influencing borrowing strategies: with prices on the rise and more buyers on the market, making the right choice of rate can optimize your purchasing power.
Clearly, if you’re going to sign a mortgage in 2025, it’s essential to assess your profile, your objectives and current trends before choosing between fixed and variable rates.
What is the key interest rate in March 2025?
On January 29, 2025, the Bank of Canada lowered the target overnight rate by 25 basis points to 3.00%. This decision is intended to bolster the economy in the face of uncertainties, particularly those linked to potential tariff barriers imposed by the United States. The Bank also announced the end of quantitative tightening, signaling a transition to a more accommodating monetary policy.
It is essential to note that the key rate directly influences the interest rates offered by financial institutions to consumers. A reduction in the key interest rate can lead to a fall in variable mortgage rates, while fixed rates are more influenced by bond market conditions. As a result, borrowers should carefully assess their risk tolerance and financial objectives before choosing between a fixed and a variable rate.
Variable rates are often perceived as riskier, but they also offer interesting opportunities, especially when interest rates are falling.
What is a variable rate?
Unlike a fixed rate, which remains stable for the duration of the mortgage term, the A variable mortgage rate is an interest rate that fluctuates with adjustments to the Bank of Canada’s key lending rate. This means that your monthly payments, or the portion of your payment applied to principal and interest, may change over time.
Advantages and disadvantages of a variable rate
The variable rate can offer substantial savings during periods of falling interest rates, but it also entails the risk of higher payments in the event of a rise in key interest rates. Here’s a comparison of the benefits and risks to consider:
Criterias
Advantages
Disadvantages
Total cost of loan
Potentially lower when rates fall. May increase if rates rise.
May increase if rates rise.
Flexibility
Possibility of refinancing to a fixed rate in the event of an increase, with no significant penalty. Uncertainty over the amount of future payments.
Uncertainty over the amount of future payments.
Long-term savings
Can help you pay off your loan faster if rates fall.
Requires higher risk tolerance.
Accessibility
Initial interest rate often lower than a fixed rate.
Exposure to fluctuations in key interest rates.
Why choose a variable rate in 2025?
If you’re comfortable with a certain amount of volatility, choosing a variable rate in 2025 could allow you to benefit quickly from falling interest rates, unlike a fixed rate that doesn’t adjust automatically.
“We observe a massive return to variable rates: today, they account for 20% of new mortgages, an increase of 50% since last September. With the Bank of Canada announcing future rate cuts, consumers are betting on a gradual reduction in their interest payments as early as 2025.”
Kyle Shapcott, real estate expert
What is a fixed rate?
The fixed rate is a preferred choice for those looking for total stability in their monthly payments, but is it still the best option in 2025?
What is a fixed rate?
A fixed rate is an interest rate that remains unchanged for the entire agreed term of the loan, whether 1, 3, 5 or more years. This means that, regardless of fluctuations in the Bank of Canada’s key interest rate, your monthly mortgage payments remain constant. This stability allows borrowers to better plan their budget without the risk of unpleasant surprises.
A fixed-rate mortgage can be a reassuring option if you want to avoid potential interest rate rises and guarantee financial stability.
The choice of a fixed rate is primarily based on the stability and financial security it offers borrowers. Unlike the variable rate, it doesn’t allow you to take advantage of rate cuts, but it does protect you against any unforeseen rate rises. This type of rate is particularly suited to borrowers who prefer peace of mind and want to plan their finances without the risk of fluctuating monthly payments.
Criterias
Advantages
Disadvantages
Total cost of loan
Predictable over the entire term, protects against rate hikes.
Potentially higher than a variable rate if rates fall.
Flexibility
Ideal for a stable budget with no surprises.
Less flexibility for refinancing, high penalties for early termination.
Long-term savings
Protects against sudden rate rises, ideal for those who don’t want to follow the market.
Does not allow you to benefit from rate cuts without renegotiating your loan.
Accessibility
Offers reassuring financial stability for first-time buyers and cautious investors.
Initial rate often higher than a variable rate.
Why choose a fixed rate in 2025?
The fixed rate is recommended for cautious borrowers who prefer budget stability and don’t want to take risks in the face of market fluctuations.
According to Les Affaires, fixed rates could be higher in 2025 than variable rates, due to adjustments in the mortgage market. However, they remain a choice option for those seeking financial security and wanting to avoid unpredictable interest rate fluctuations.
Opting for a fixed rate is an excellent solution for buyers who want to secure their budget and avoid any uncertainty linked to interest rate fluctuations.
Valérie Lacasse, expert in real estate
Variable or fixed rate: what to choose in 2025?
Every buyer has specific needs, and the choice between a fixed and a variable rate depends on several factors: your risk tolerance, your financing horizon and economic trends.
Trends in real estate rates
The evolution of interest rates is influenced by a number of macroeconomic factors, including decisions by the Bank of Canada, inflation forecasts and the state of the real estate market.
Keep up to date with the latest market trends and analyses with our expert articles on these topics:
Lower key interest rates: a return to variable rates?
Since 2024, the Bank of Canada has begun a gradual reduction in its key rate, following several years of increases aimed at containing inflation. This fall in rates has a direct impact on variable-rate mortgages, which become more attractive for borrowers wishing to benefit from a gradual reduction in their monthly payments without renegotiation.
According to Les Affaires, the Canadian market is seeing a significant rise in new variable-rate mortgages, which now account for 20% of new underwriting, up 50% on September 2024. Also,According to Finance et Investissement, the return of variable rates is justified by the anticipation of a prolonged cycle of key rate cuts, which could fall below 4% by the end of 2025.
If the downward trend in rates continues, borrowers opting for a variable rate could see their monthly payments fall automatically over the coming months. However, one uncertainty remains: if inflation picks up again, the Bank of Canada could slow down or suspend its rate cuts, making the variable rate riskier.
Are fixed rates still a safe option?
Fixed rates, although rising slightly, remain a preferred choice for buyers who want to lock in their rate and avoid volatility.
According to Nesto, fixed rates offer important predictability, especially for households that don’t want to be exposed to market fluctuations. According to projections by several financial institutions, 5-year fixed rates could fluctuate between 5.5% and 6% in 2025, compared with over 6% in 2023.
If you’re looking for financial stability and want to budget your payments over the long term, a fixed rate remains a reassuring solution. However, in a context of falling rates, it could be more costly over the long term, as it does not allow you to benefit from any reductions in the key rate without refinancing.
In short, depending on your buyer profile, the choice between the two types of rate differs:
Buyer profile
Recommended rate type
Justification
First-time buyer
Fixed rate
Offers payment stability, making budget management easier for those new to the real estate market.
Real estate investor
Variable rate
Takes advantage of potential rate cuts, optimizing returns on short-term investments.
Long-term buyer
Fixed rate
Ensures constant payments over a long period, ideal for those who plan to keep their property for many years.
Borrowing on a tight budget
Fixed rate
Avoid surprises due to rate fluctuations, guaranteeing predictable payments for a limited budget.
Risk-tolerant profile
Variable rate
Can benefit from potentially lower interest rates, with acceptance of possible variations in monthly payments.
Owner-lessor
Variable rate
Rental income can offset variations in payments, and a variable rate can maximize profitability in periods of falling rates.
Choosing between a fixed and a variable rate in 2025 depends on a number of factors specific to your financial situation and market trends. Here are the essential elements to consider when making an informed decision:
1. Assess your risk profile and tolerance to fluctuations
If you prefer stability and want to avoid any surprises on your monthly payments, a fixed rate is a reassuring choice.
On the other hand, if you have a higher risk tolerance and are ready to take advantage of any rate cuts, a variable rate could be advantageous.
2. Take into account short- and long-term projects
For a long-term real estate project (10 years or more), a fixed rate can offer financial predictability.
For a short-term purchase (resale in 3 to 5 years, refinancing planned), a variable rate offers greater flexibility and potential savings on interest payments.
3. Check penalty clauses for breach of contract
A fixed-rate mortgage often involves higher penalties if you have to break the contract before the end of the term (e.g. interest rate differential).
A variable rate generally has lower penalties (often the equivalent of 3 months’ interest). If you’re thinking of refinancing or selling in the next few years, this is a criterion not to be overlooked.
4. Keep an eye on economic forecasts and key interest rates
With the Bank of Canada expected to lower rates in 2025, variable rates could once again become a popular choice.
However, if you want to avoid uncertainty and lock in a competitive rate now, a fixed rate could be a wise choice.
5. Consult an expert for the right strategy
Every situation is unique! A mortgage broker can analyze your file, present you with the best offers on the market and advise you on your project.
By making an appointment with a specialist, you can optimize your choice and avoid costly mistakes.
Conclusion
In 2025, the decision between a fixed and a variable rate depends mainly on your buyer profile, your risk tolerance and your financial objectives.
On the one hand, the variable rate is regaining its appeal with the cut in the Bank of Canada’s key interest rate, allowing borrowers to benefit immediately from potential reductions in interest payments. This is an attractive option for those who anticipate a continuation of this trend and are comfortable with some volatility.
On the other hand, the fixed rate remains a reassuring choice for those seeking stability and wishing to lock in a competitive rate now, without fear of future increases.
The key is to assess your personal situation:
Do you prefer budget predictability and want to secure your payments? A fixed rate is ideal.
Are you prepared to take a certain risk to benefit from a fall in rates? A variable rate could be more advantageous.
Whatever your decision, it’s essential to consult an expert to analyze your options and optimize your mortgage strategy.
📲 Need personalized advice? Contact our team of Montreal real estate brokers for a detailed analysis and find the right rate for your real estate project!
Kyle has been an expert on the real estate market for over 10 years. He is passionate about Montreal and the city’s real estate sector, and regularly shares his analysis and advice in his articles.
