Choosing between a fixed and variable rate is one of the biggest decisions you’ll make with your mortgage. Neither is always better. The right choice depends on your budget, your plans and how much risk you’re comfortable with.
How a fixed rate works
Your interest rate and payment stay the same for the whole term (usually 5 years). That makes budgeting easy. The trade-off: fixed-rate penalties for breaking your mortgage early are calculated using the interest rate differential (IRD), which can run into the tens of thousands.
How a variable rate works
Your rate is set as prime ± a discount (e.g. prime − 0.60%). When the Bank of Canada changes its policy rate, your rate moves with it. Some lenders adjust your payment; others keep it the same and change how much goes to principal. Breaking a variable mortgage typically costs only three months’ interest.
Questions to ask yourself
- Could my budget handle a payment increase of $200–$400/month?
- Might I sell, move or refinance within the next five years?
- Do I want to lock in and stop watching rate announcements?
The bottom line
If certainty matters most, fixed is a comfortable choice. If you have some flexibility and might need to break your mortgage, variable can save money. Talk to us and we’ll model both for your situation.