The variable vs. fixed mortgage rate decision is one of the biggest a borrower will make when selecting their mortgage. Many of my clients are choosing a 3 – 5 year fixed rate right now, as we suspect the rates will trend downwards after the 3-year period. 

It’s a decision that will affect a homeowner for years to come and could be the difference in literally thousands of dollars of interest cost.

This year as inflation sweeps through the Canadian economy has led to higher mortgage rates, we will see that a fixed or variable rate mortgage may be best, depending on your unique situation and risk tolerance.

Fixed Rate:

  • Locks your rate into place for a period of time called the term (usually 1,2,3,4 or 5 years).
  • The rate is typically a bit higher but provides for a stable, consistent mortgage payment for years to come.
  • If you break the mortgage, there is often a bigger penalty called an ‘Interest Rate Differential’ penalty.
  • Switching from a fixed rate to a variable rate without breaking the mortgage is impossible.

Variable Rate:

  • The rate floats or changes over time, with decisions from the Central Bank of Canada.
  • The rate is determined using a discount off of the Prime Rate (ex. Prime minus .50%).
  • Typically, the variable rate is lower than fixed, but can also float higher for periods.
  • If you break the mortgage, the penalty is typically far lower.
  • You can lock the variable rate into a fixed rate at any time, without breaking the mortgage.

Which rate is best for you? Get in touch today to evaluate your personal financial goals and situation.