Fixed or Variable: Which Mortgage Is Right for You?
There is no one right answer. There is the right answer for you.
The quick version
Fixed: your rate stays the same for the whole term. Predictable, but penalties can be high if you break it.
Variable: your rate moves with the lender's prime rate. Penalties are usually lower, but your costs can change.
Hybrid: part fixed, part variable.
The right choice depends on your budget, comfort with risk and life plans, not on guessing where rates will go.
Not sure which fits you? Book a call and we will weigh the options together.
What moves mortgage rates?
Variable rates follow the Bank of Canada's policy rate. When the Bank raises or lowers its rate, lenders' prime rates usually follow.
Fixed rates mostly follow the bond market, which reacts to things like inflation, the economy and global events.
Inflation is a big one. The Bank of Canada aims to keep inflation around 2%, and adjusts its rate to get there.
Nobody can predict rates with certainty, not even the experts. That is why your plan should work for you whichever way rates go.
Fixed rate
Pros
Your payment stays the same for the whole term
Easy to budget
Protection if rates rise
Cons
Often starts at a higher rate than variable
Breaking it early can be expensive. Penalties are often based on the "interest rate differential" (IRD), which can run into the thousands.
Variable rate
Pros
You benefit if rates go down
The penalty to break it is usually just three months' interest
Many lenders let you lock into a fixed rate later
Cons
Your costs go up if rates rise
Less predictable for your budget
Good to know: some variable mortgages change your payment when rates change. Others keep your payment the same and change how much goes to interest versus principal. Ask which kind you are getting.
Hybrid
Part of your mortgage is fixed and part is variable. It spreads your risk and gives you some of the benefits of both.
Questions to ask yourself
Could I handle a higher payment if rates went up?
Do I sleep better knowing my payment will not change?
Might I move, refinance or sell before the term is up?
How long do I plan to keep this mortgage?
If you might break your mortgage early, the penalty matters as much as the rate.
Let us choose with confidence
The best choice today might be different a few months from now. I keep an eye on the market and walk you through the trade-offs, so your decision fits your life, not a headline. Book a call and let us talk it through.
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