(905) 441 0770 allen@allenehlert.com

Fixed or Variable? Picking the Right Commercial Mortgage

by | October 18, 2025

… A Practical Look at Managing Risk in Commercial Lending

When it comes to commercial mortgages, one of the first questions clients ask me — after “What’s the rate?” — is “Should I go fixed or variable?” And honestly, it’s a great question. Because unlike with your typical home mortgage, this decision isn’t just about saving a few bucks on interest. In the commercial world, it’s about managing risk, protecting your cash flow, and aligning your financing with your long-term business goals.

The answer isn’t the same for everyone. It depends on what you’re buying, how your business operates, and your personal tolerance for uncertainty. So let’s break it down in plain language, cut through the noise, and help you figure out which path makes the most sense for you and your commercial property.

What I’m Covering:

How Fixed-Rate Commercial Mortgages Work

How Variable-Rate Commercial Mortgages Work

The Pros and Cons of Fixed vs. Variable in Commercial Lending

How to Decide Which is Right for You

How You Can Put This Knowledge to Work

How Fixed-Rate Commercial Mortgages Work

A fixed-rate mortgage is exactly what it sounds like: your interest rate stays locked in for the term of the loan. Whether it’s a 3-year term, 5-year term, or longer, you’ll know exactly what your payment is every month. No surprises, no fluctuations, no keeping one nervous eye on the Bank of Canada’s next move.

Lenders love offering fixed rates for stabilized assets with predictable cash flow. And borrowers love them for the peace of mind they bring — especially if your business depends on steady, reliable expenses.

Fixed rates are often slightly higher than variable rates at the start, but in exchange, you get certainty.

How Variable-Rate Commercial Mortgages Work

With a variable-rate mortgage, your interest rate floats along with your lender’s prime rate. When prime goes up, your rate goes up. When prime goes down, you save money.

Variable rates usually start lower than fixed, which is why they’re tempting. But they come with a built-in rollercoaster ride. If rates shoot up faster than expected — like we’ve seen in recent years — your borrowing costs can climb quickly.

Variable can make sense if you:

  • Expect rates to stabilize or fall
  • Need flexibility (easier exit terms than fixed)
  • Have a strong cash flow cushion and can handle payment fluctuations

But you need to have a strong stomach and a solid plan for managing the ups and downs.

The Pros and Cons of Fixed vs. Variable in Commercial Lending

Let’s call it like it is — both options have their place. The trick is understanding which is the better fit for your risk tolerance, business model, and market outlook.

Fixed-Rate Pros:

  • Predictable payments for budgeting
  • Protection from rising interest rates
  • Stability over longer terms

Fixed-Rate Cons:

  • Higher initial rates
  • Potentially large penalties for breaking early
  • Less flexibility

Variable-Rate Pros:

  • Lower starting rates
  • Potential savings if rates drop
  • More flexible exit options

Variable-Rate Cons:

  • Payments can increase unexpectedly
  • Harder to forecast long-term cash flow
  • Financial stress if rates spike

How to Decide Which is Right for You

Choosing between fixed and variable isn’t about guessing where rates will go. It’s about knowing your comfort zone and business strategy.

Here’s how to think about it:

  • If you value certainty and stability, lean fixed. Perfect for properties where consistent cash flow is key — like multi-family rentals, medical offices, or long-term leaseholds.
  • If you value flexibility and have the cash flow to ride out changes, consider variable. Ideal for shorter-term holds, value-add projects, or situations where you might refinance sooner.
  • If your business can’t absorb surprises easily, go fixed.
  • If you want to keep your options open or plan to sell within a couple of years, variable might fit.

How You Can Put This Knowledge to Work

Let’s say you’re buying a stabilized 12-unit apartment building with long-term tenants. Your rental income is steady, your expenses are steady, and your goal is to hold the asset for the long haul. In this case, fixed gives you certainty. You lock in your costs and focus on managing the building, not interest rates.

On the other hand, you might be buying a small industrial property that you’re planning to renovate, re-lease, and refinance within two years. You know you’re exiting early. Variable gives you flexibility and typically lower penalties if you break the mortgage ahead of schedule.

Or maybe you’ve got a retail plaza with solid tenants, but you’re watching market rates like a hawk. You could even split the mortgage: part fixed, part variable — a strategy some lenders will allow to hedge your bets.

Allen’s Final Thoughts

There’s no magic answer when it comes to choosing between fixed and variable in commercial lending. It’s about knowing your business, your cash flow, and your comfort with risk.

Fixed is for peace of mind. Variable is for flexibility. Both serve a purpose, but the wrong choice can cause more headaches than it’s worth.

What really matters is having a strategy — not just picking a rate because someone else said it worked for them.

And that’s where I come in.

How I Can Help

As your mortgage agent, my job isn’t just to get you approved — it’s to help you choose the financing strategy that aligns with your business goals, cash flow needs, and risk tolerance.

Here’s how I can help you make the right call:

  • Break down the pros and cons specific to your situation
  • Show you scenarios for how rate changes could impact your property
  • Negotiate terms that give you flexibility where you need it
  • Guide you through structuring your mortgage for today and tomorrow
  • Stay in your corner, long after funding to help you adjust when markets change

Whether you’re buying, refinancing, or just planning your next move, I’m here to help you make these decisions with confidence, clarity, and a strategy that fits.

Let’s talk about what’s best for your business — and how we can structure your financing so it works for you, not against you.

Mortgage and Money Radio Logo
Allen Ehlert

Allen Ehlert

Allen Ehlert is a licensed mortgage agent. He has four university degrees, including two Masters degrees, and specializes in real estate finance, development, and investing. Allen Ehlert has decades of independent consulting experience for companies and governments, including the Ontario Real Estate Association, Deloitte, City of Toronto, Enbridge, and the Ministry of Finance.

Commercial Fixed Variable

Fixed or Variable? Picking the Right Commercial Mortgage

When it comes to commercial mortgages, one of the first questions clients ask me — after “What’s the rate?” — is “Should I go fixed or variable?” And honestly, it’s a great question. Because unlike with your typical home mortgage, this decision isn’t just about saving a few bucks on interest.

Tenanted Property Investing

Investing in Tenanted Property in Ontario

Explore the nuances and benefits of investing in Tenanted Property across Ontario for steady income and long-term returns.

Postponement Agreements

Understanding Commercial Postponement Agreements

Postponement Agreement. If you’ve ever been involved in a commercial deal where there’s more than one lender, you’ve probably heard someone mention a postponement agreement. And while it sounds like a bureaucratic delay tactic, it’s actually one of the most important documents in multi-lender financing.

Standstill Agreement

Why Agree to a Standstill Agreement?

Standstill Agreement: In the world of commercial real estate lending, not every disagreement needs to turn into a showdown. Sometimes, the smartest move isn’t to fight for control—it’s to take a breath, stand still, and let cooler heads (and structured agreements) prevail.

That’s exactly what a standstill agreement is about. It’s not about giving up rights; it’s about protecting everyone’s position when the financial waters get choppy.

Maternity Leave

How Maternity Leave Impacts Your Mortgage

If you’re thinking about buying a home, refinancing, or renewing your mortgage and there’s a baby on the horizon, you might be wondering how maternity or paternity leave fits into the picture. The truth? Lenders love stability — and nothing signals “change” quite like stepping away from your full-time salary to focus on your family, even temporarily.

Commercial Mortgage Mistakes

Top Commercial Mortgage Mistakes

When it comes to applying for a commercial mortgage, there’s no shortage of ways to trip yourself up — and trust me, I’ve seen plenty of smart people do it. Unlike a residential mortgage, where the process is pretty straightforward and predictable, commercial lending is its own animal.

Credit Card Pay down

Smart Ways to Pay Off Credit Card Debt

Smart Ways to Payy off Credit Card Debt. If you’re staring down a mountain of credit card debt — say $60,000 or so — you’re not alone. Between rising living costs, high interest rates, and a few life curveballs, it doesn’t take much for balances to spiral out of control. When that happens, most people start thinking, “Maybe I should just use my home equity to wipe this out.”

How to Write Off Mortgage Interest

How to Write Off Mortgage Interest in Canada

Unlock tax benefits by learning how to write off your mortgage interest in Canada. Follow my guide for smart tax deductions and relief strategies.

Co-Signor - Guarantor Comparison

Comparing Co-Signor and Guarantor

In Ontario, Canada, the obligations to pay when a mortgage payment is missed differ between a guarantor and a co-signer. Understanding the differences between these roles can help clarify the responsibilities involved in guaranteeing or co-signing a mortgage.

Appraisal_Costs

How Much Does an Appraisal Cost in 2025

The process of determining the fair market value of a property plays a crucial role in real estate transactions, mortgage refinancing, and insurance purposes. If you’re looking to buy, sell, or refinance a property, understanding the cost of a home appraisal is essential.