Fixed-Rate vs. Variable-Rate Loans

Fixed-rate and variable-rate loans in the US and Canada significantly impact Equated Monthly Installments (EMI), affecting repayment stability and total costs. Fixed-rate loans lock in an interest rate, ensuring consistent EMIs, while variable-rate loans adjust rates based on market conditions, potentially altering EMIs. This guide helps borrowers in Toronto, New York, Vancouver, or beyond choose wisely, supported by our free EMI calculator.

In 2024, Freddie Mac reported 90% of US mortgages are fixed-rate, averaging 6.5%, while the Canada Mortgage and Housing Corporation (CMHC) noted 85% of Canadian mortgages are fixed-rate at 5.7%. Variable rates, tied to the US Federal Funds Rate or Canadian Prime Rate, account for 10% (US) and 15% (Canada) of loans, per 2025 data, benefiting borrowers in California, Alberta, and beyond.

Fixed-Rate Loans

Interest rates remain constant, ensuring stable EMIs. For a $200,000 US home loan at 6.5% over 30 years, EMI ≈ $1,264.14, with total interest of $155,093.04 and total paid of $355,093.04, calculated as EMI = P × r × (1 + r)^n / [(1 + r)^n - 1].

Variable-Rate Loans

Rates adjust periodically, potentially changing EMIs. For the same $200,000 loan starting at 6.5%, rising to 7.5% after 5 years, EMI increases to $1,398.43, adding $18,339.76 in interest, totaling $373,432.80. In Canada, a CAD 250,000 mortgage at 5.7% (fixed) has EMI ≈ CAD 1,548.57, but variable (rising to 6.7%) increases EMI to CAD 1,720.45, adding CAD 11,564.00, totaling CAD 376,135.00.

This chart compares EMI and total interest for a $200,000 US home loan over 30 years, showing fixed-rate (6.5%) vs. variable-rate (6.5% to 7.5%) outcomes.

Data from Freddie Mac, CMHC, and 2025 reports highlight rate impacts, per Federal Reserve and Bank of Canada insights.

Fixed-Rate Benefits: Predictability shields from rate hikes; a 2024 National Association of Realtors study found US borrowers saved $15,000 over 30 years. Variable-Rate Benefits: Potential savings if rates fall (12% for Canadians in 2008–2010, per FCAC), but risks include higher costs if rates rise (20% for Canadians in 2022–2023, per Bank of Canada). Misconceptions include assuming fixed rates are always costlier—however, they protect against volatility, per Bankrate’s 2025 analysis.