Fixed vs Variable Rates for Investors: A Decision Framework

A practical framework for choosing between fixed and variable rate mortgages on investment properties. Analysis based on cash flow, risk tolerance, and strategy.

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Fixed vs Variable Rates for Investors: A Decision Framework

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The fixed vs variable rate decision affects every mortgage-holding investor, and it deserves more thoughtful analysis than most investors give it. Rather than following generic advice or gut feelings, use a structured framework that accounts for your specific situation.

For a broad overview of how these rate types work, see our guide to fixed vs variable rate mortgages for Canadian investors. This post focuses specifically on the decision framework for investment properties.

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Why This Decision Is Different for Investors

The fixed vs variable choice affects investment properties differently than primary residences for several reasons.

Cash flow sensitivity. Rate increases directly reduce (or eliminate) positive cash flow. A primary residence doesn’t generate income, so rate changes affect your personal budget but not a business model. Investment properties have tighter margins where rate changes can turn profits into losses.

Portfolio compounding. When you have multiple mortgages, rate movements affect you across all properties simultaneously. A 1% increase on five properties with $300,000 mortgages costs $15,000 per year in additional interest—collectively.

Refinancing frequency. Investors refinance more often than homeowners for portfolio growth, equity extraction, or property repositioning. Break penalties differ significantly between fixed and variable mortgages, making this a material consideration.

The Decision Framework

Score yourself on each factor. More “fixed” answers suggest fixed rates; more “variable” answers suggest variable rates.

Factor 1: Cash Flow Margin

How much buffer does your property cash flow provide?

Tight margins (under $200/month per property): A rate increase of 1-2% could push you into negative cash flow. Fixed rate protection is more valuable when margins are thin.

Comfortable margins ($200-500/month): You can absorb moderate rate increases without crisis. Variable becomes more viable.

Strong margins (over $500/month): You have significant cushion. Variable rate’s potential savings are worth pursuing since increases won’t threaten your position.

Factor 2: Portfolio Size

How many mortgaged properties do you have?

One or two properties: Rate movements are manageable. Either choice works. You might lean variable for the historical savings advantage.

Three to five properties: Rate movements amplify across the portfolio. Consider splitting—fixed on tight-margin properties, variable on strong ones.

Six or more properties: You’re running a business where cash flow predictability matters for planning. Fixed rates reduce uncertainty. Alternatively, work with your broker to explore qualifying strategies for multiple properties that might affect lender and rate options.

Factor 3: Hold Period Plans

How long do you plan to hold the current mortgage?

Planning to sell or refinance within 1-3 years: Variable rates typically carry lower break penalties (three months’ interest vs. Interest Rate Differential for fixed). The penalty savings can exceed any rate advantage fixed offers.

Holding to full term: Break penalties are irrelevant. Choose based on rate economics and cash flow needs.

Uncertain: Variable’s lower penalties provide optionality that has value even if you never exercise it.

Factor 4: Rate Environment

Where are rates currently relative to historical norms?

Rates are historically low: Locking in with a fixed rate preserves advantageous pricing. Variable rates can only go up from here (or stay flat).

Rates are historically high: Variable may benefit from rate decreases. Fixed locks you into elevated rates for the full term.

Rates are mid-range: Neither choice has a clear environment-based advantage. Weight other factors more heavily.

Factor 5: Personal Risk Tolerance

Be honest about your comfort with uncertainty.

Low tolerance: Payment variability causes stress that affects your decision-making. Fixed rates buy peace of mind that has real value.

High tolerance: You accept short-term cost fluctuations for potential long-term savings. Variable aligns with this mindset.

Refinancing at the wrong time or with the wrong lender can leave equity trapped — book a free strategy call with LendCity to make sure your refinance actually moves you forward.

The Split Strategy

Many experienced investors split their portfolio between fixed and variable rates rather than choosing one for everything.

Fix the vulnerable properties. Properties with thin margins, properties you’ll hold long-term, or properties that represent your largest exposure get fixed rates. Protection where you need it most.

Float the strong ones. Properties with strong cash flow, properties you might sell or refinance soon, or properties where a rate increase won’t threaten viability get variable rates. Capture savings where you can absorb the risk.

This approach balances risk management with cost optimization across the portfolio. Your mortgage broker can help model different split scenarios.

What History Tells Us

Historical data shows variable rate borrowers have paid less over time in the majority of periods. This reflects the risk premium embedded in fixed rates—lenders charge extra for the certainty guarantee.

However, “most of the time” isn’t “always.” Periods of rapid rate increases have punished variable borrowers, sometimes severely. Past performance doesn’t guarantee future results, particularly in unusual economic environments.

Use history to inform but not dictate your decision. Historical averages matter less than your specific ability to absorb rate movements.

Pulling equity out of your property is one of the most powerful tools for scaling — schedule a free strategy session with us and we’ll help you time it right.

Common Mistakes

Choosing based on today’s rate alone. The starting rate difference matters less than how rates might move over the term. A variable rate that’s 0.5% lower today could be 2% higher next year.

Ignoring break penalties. Investors who need financing flexibility should weight break penalties heavily. A fixed rate mortgage broken early can cost tens of thousands in IRD penalties.

Following the crowd. When everyone is choosing fixed (usually after rates have risen), variable might be the contrarian value play. When everyone is choosing variable (usually when rates are low), fixed might protect against the inevitable rise.

Not reassessing at renewal. The right choice changes as your situation, portfolio, and the rate environment evolve. Re-evaluate at every renewal rather than defaulting to the same product. Understanding how to save on your mortgage beyond just rate provides additional optimization strategies.

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Frequently Asked Questions

Can I switch from variable to fixed during my term?

Most variable rate mortgages allow conversion to a fixed rate during the term. The fixed rate offered is typically the lender's current posted rate for the remaining term. This conversion option provides a safety valve without break penalties.

How much could my variable rate payment increase?

Each 0.25% rate increase adds roughly $12-13 per month per $100,000 of mortgage. A 2% increase on a $400,000 mortgage would cost approximately $400 more per month. Model these scenarios against your cash flow to understand your exposure.

Should I choose the same rate type for all my properties?

Not necessarily. The split strategy—fixing vulnerable properties and floating strong ones—often serves portfolio investors better than uniform selection. Each property's cash flow profile and your plans for it should inform the rate type choice.

What is the Interest Rate Differential penalty?

The IRD penalty applies when breaking a fixed rate mortgage. It's calculated as the difference between your contract rate and the rate the lender could charge for the remaining term, applied to your outstanding balance. This penalty can be substantial—often tens of thousands of dollars on investment property mortgages.

Does the rate type affect my qualification for the next property?

Both fixed and variable rates are stress-tested for qualification purposes. The stress test uses the higher of the contract rate plus 2% or the qualifying rate floor. This means the rate type typically doesn't significantly affect qualification calculations for subsequent properties.

Making Your Decision

Use the framework. Score each factor honestly. Let your specific situation drive the choice rather than opinions, predictions, or anxiety.

If most factors point toward fixed, go fixed. If most point toward variable, go variable. If it’s mixed, the split strategy gives you both.

Then stop worrying about it. The decision matters, but it’s not irreversible. You’ll have another chance to optimize at renewal.

Disclaimer: LendCity Mortgages is a licensed mortgage brokerage, and our team includes experienced real estate investors. While we are qualified to provide mortgage-related guidance, the broader financial, tax, and legal information in this article is provided for educational purposes only and does not constitute financial planning, tax, or legal advice. For matters outside mortgage financing, we recommend consulting a Chartered Professional Accountant (CPA), licensed financial planner, or qualified legal advisor.

Written by

LendCity

Published

January 30, 2026

Reading Time

6 min read