What each option does to the payment
A fixed rate locks the payment for the term. A variable rate follows the lender’s prime: depending on the contract, either the payment moves, or the split between principal and interest moves at a constant payment. That distinction changes everything when rates rise.
The real question
Not “which will cost less” — nobody knows — but “which can I carry if things change”. Your budget room, income stability, and horizon matter more than the forecast of the moment.
The penalty, often forgotten
The prepayment penalty is calculated differently by rate type. On a fixed rate, it generally rests on the interest rate differential, a method that can produce a substantial figure. On a variable, it more often equals three months’ interest.
The qualification test
Lenders qualify borrowers at a rate above the contract rate. That test applies to both options and shapes how much you can borrow, independently of the rate you will obtain.
Changing your mind partway
Most variable-rate contracts allow converting to a fixed rate mid-term, often without penalty, but at the fixed rate in force at that moment. It is a useful option to know about, and a clause to check before signing.
No rate, price, or recommendation on this page. Amounts and limits change: verify them with official sources before deciding.