Fixed VS. Variable Rate Mortgages

In Ontario there are two main types of mortgages that borrowers often consider – fixed rate mortgages and variable rate mortgages. The major difference between the two is really about how the interest rate either stays consistent or fluctuates over the term of the mortgage. A term is typically anywhere between 1 to 5 years in Ontario. Let me break them down for you!

Fixed Rate Mortgages:

With this type of mortgage, the interest rate is going to stay consistent throughout the term of the mortgage. Since the interest rate is staying the same, that means that your monthly mortgage payments will also be consistent. This is a huge bonus if you like predictability and want to know exactly how much to budget for your mortgage each month. A downfall of a fixed rate mortgage is that you may see a slightly higher interest rate compared to the initial rates of variable rate mortgages. If you are the type of borrower who values consistency and wants to protect yourself from the potential of interest rate increases, a fixed mortgage is the one for you!

Variable Rate Mortgages:

As opposed to the consistency of the interest rates in a fixed rate mortgage, a variable rate mortgage has the potential to fluctuate over time. The fluctuations are a direct result of changes in the prime lending rate, which is set by the Bank of Canada. Since interest rates may sway, that means that your monthly mortgage payments may also sway in the same direction. Due to the fluctuation, and potential instability, that means that your budget may be impacted as well. Up front, a variable rate mortgage will likely offer lower interest rates compared to fixed rate mortgages, resulting in saving on your monthly payments. However, it is important to not lose sight of the fact that the Bank of Canada can increase rates up to 8 times a year. As we have seen in 2022 and 2023, the interest rate increases have the potential to cause major financial strain on borrowers. If you have a higher tolerance for financial risk, then a variable mortgage is a good option.

As a homebuyer, it is necessary to consider your current financial situation, your risk tolerance, as well as your long-term plans. If you analyze those aspects of your life, it may help when concluding between a fixed rate or a variable rate mortgage. It’s important to remember that you do not have to make this decision alone, connecting with a mortgage agent like me can save you major headaches, time, and money. Mortgage agents will help you find the best, most customized mortgage for you and your lifestyle.

I’m always here to help you and answer any questions you may have. Book an 18 minute meeting with me here.