Variable vs Fixed Mortgage Rates

Fixed Rate Mortgage

Interest rate stays fixed for the entire term length of the mortgage. This means equal payments every month and any fluctuations in the interest rate will not affect you. A fixed interest rate is usually recommended for first time home buyers so that they can manage their household budgets easier and without worry of possible payment increases.

Variable Rate Mortgage

The interest rate adjusts with the prime rate. The prime interest rate may go up or down and this may affect your monthly mortgage payments. When the prime rate goes up, more of your mortgage payment will go to interest and when the prime rate goes down, more of your mortgage payment will go to principal. In the event that the variable rate rises past what your mortgage payment would cover in just interest payments, your payment can adjust upward or your amortization could be extended. Interest rate is affected by the Canadian economy and monetary policies, such as the prime rate, is set by the Bank of Canada.

Variable vs Fixed Rate Mortgage

• Variable mortgage has lower interest rate than fixed rate mortgage, but the rate may go up.
• Fixed rate mortgage gives you 100% certainty that payments will not change for entire mortgage term length.

Studies by Dr. Milevsky of York University have shown that between 1950 to 2007 one in seven Canadians who choose variable rate mortgage saved an average $20,630 on interest payments per every $100,000 over 15 year period, due to lower interest rates offered on variable mortgages.

Whether the variable rate mortgage or fixed rate mortgage turns out better depends on what happens to interest rates in the future, which no one knows. Ask yourself a question, is this the risk worth taking? Can I afford to?

Payments on a variable mortgage vary every month by around $20 and up to $250. If rates go down significantly, payments may decrease by an average of $100. If rates increase significantly, payments may go up by $100. Though you can save more, changing payments can cause a headache to your budget.

Fixed mortgage offers one stable payment which doesn't change.

Apply for fixed or variable rate mortgage today.

Mortgage interest rates are subject to change without notice. We attempt to maintain accuracy on our website, however, mortgage information on this website should be used only as a guideline. Please consult a mortgage professional before taking any action.