What is the difference between a fixed and variable interest rate?

A fixed rate stays the same for the entire term, so your payment is predictable. A variable rate is tied to the lender's prime rate and changes when the Bank of Canada adjusts policy, which can raise or lower your interest cost over time.

Is the interest rate the same as APR?

No. The interest rate is the cost of borrowing alone, while the APR (annual percentage rate) folds in certain fees and charges to show the fuller cost of the loan. The APR is usually slightly higher than the quoted rate.

Mortgage Glossary

What is Interest Rate?

Q: What affects the interest rate I am offered?

Lenders weigh overall market rates, your credit score, your down payment and loan-to-value ratio, the term length, and whether the mortgage is insured. A stronger application generally earns a lower rate.

An interest rate is the cost of borrowing money, expressed as an annual percentage of the amount owed. On a mortgage, it determines how much you pay the lender on top of repaying the principal. Rates can be fixed for the term or variable, moving with the lender's prime rate.

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Quick answer

Also known as: mortgage rate, borrowing rate

Key points

Quoted as an annual percentage of the outstanding balance.
Each payment splits between interest and principal; early payments are interest-heavy.
Fixed rates stay constant; variable rates move with the lender's prime rate.
Your rate depends on market conditions, credit, term, and loan-to-value.
Even a 0.25% difference can add up to thousands over a term.

Interest Rate explained

An interest rate is the price a lender charges to lend you money, quoted as a yearly percentage of your outstanding balance. Each mortgage payment is split between interest (the lender's charge) and principal (repaying what you borrowed). Early in an amortization, a larger share of every payment goes to interest because the balance is still high.

Mortgage interest rates come in two main forms. A fixed rate stays the same for the whole term, giving predictable payments. A variable rate is tied to the lender's prime rate, so it rises and falls with the Bank of Canada's policy decisions. The rate you are offered depends on the broader market, your credit, the loan-to-value ratio, the term length, and whether the mortgage is insured.

What a Interest Rate is for

The interest rate exists to compensate a lender for the risk and opportunity cost of lending you money over time. It is the mechanism through which mortgage debt is priced, allowing lenders to fund loans profitably while giving borrowers access to far more capital than they could pay in cash. For the borrower, it is the single biggest lever affecting the lifetime cost of a home.

How it can help you

Understanding interest rates helps you see how much a mortgage truly costs and why even a small difference in rate adds up over hundreds of thousands of dollars. Knowing the rate also lets you compare offers on an apples-to-apples basis and decide between fixed and variable. Because lenders price the same borrower differently, shopping around matters. Lenderoo compares offers from 40+ lenders for free, so you can find a competitive rate without visiting each one yourself.

When it comes up

A buyer comparing two five-year fixed offers uses the interest rate to estimate monthly payments and total interest over the term. By plugging each rate into a mortgage calculator, they see that the lower rate saves them thousands across the term, which justifies the effort of shopping multiple lenders before signing.

Example: How rate affects cost

Suppose you borrow $400,000 over a 25-year amortization. At a 5% interest rate, your monthly payment is roughly $2,330. At 6%, it climbs to about $2,560 a month.

That one-percentage-point difference is about $230 a month, or roughly $2,760 a year. Over a five-year term that is nearly $14,000 in extra interest, which shows why comparing rates before you commit is worth the effort.

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Questions & answers

Interest Rate: frequently asked questions

Common questions Canadians ask about interest rate.

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Related mortgage terms

Fixed-Rate Mortgage

A mortgage with an interest rate that remains constant.

Read definition

Variable-Rate Mortgage

A mortgage whose interest rate moves up or down with the lender's prime rate over the term.

Read definition

Prime Rate

The base lending rate banks use to price variable loans.

Read definition

Annual Percentage Rate (APR)

The yearly cost of borrowing expressed as a percentage, including interest plus most mandatory fees.

Read definition

Principal

The original amount borrowed, excluding interest.

Read definition

Back to full glossary

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Lenderoo shops 40+ lenders for free and pairs you with a mortgage professional who keeps the jargon simple — and gets you a great rate.

Find my best mortgage Explore the glossary

Mortgage Glossary

What is Interest Rate?

Find my best mortgage Back to glossary

Quick answer

Also known as: mortgage rate, borrowing rate

Key points

Quoted as an annual percentage of the outstanding balance.
Each payment splits between interest and principal; early payments are interest-heavy.
Fixed rates stay constant; variable rates move with the lender's prime rate.
Your rate depends on market conditions, credit, term, and loan-to-value.
Even a 0.25% difference can add up to thousands over a term.

Interest Rate explained

What a Interest Rate is for

How it can help you

When it comes up

Example: How rate affects cost

Suppose you borrow $400,000 over a 25-year amortization. At a 5% interest rate, your monthly payment is roughly $2,330. At 6%, it climbs to about $2,560 a month.

Have a question about interest rate?

Lenderoo shops 40+ lenders for free and matches you with a mortgage professional who explains every term — and finds your best rate.

Get pre-approved free Talk to an expert

Questions & answers

Interest Rate: frequently asked questions

Common questions Canadians ask about interest rate.

Keep learning

Back to full glossary

Understand your mortgage with confidence

Lenderoo shops 40+ lenders for free and pairs you with a mortgage professional who keeps the jargon simple — and gets you a great rate.

Find my best mortgage Explore the glossary