Choosing between a fixed and variable mortgage is one of the biggest decisions when securing a home loan. Both options have their advantages, but the right choice depends on your financial goals, risk tolerance, and market conditions. Let’s break it down so you can make an informed decision.
What is a Fixed-Rate Mortgage?
A fixed-rate mortgage locks in your interest rate for the entire loan term (e.g., 3, 5, or 10 years). This means your monthly payments remain the same, providing stability and predictability.
Pros:
✔ Predictable payments for better budgeting
✔ Protection from interest rate hikes
✔ Ideal for long-term financial planning
Cons:
✘ Usually higher initial interest rates than variable mortgages
✘ Less flexibility if rates drop during your term
A fixed-rate mortgage is best for homebuyers who prefer stability and want to avoid fluctuations in their monthly payments.
What is a Variable-Rate Mortgage?
A variable-rate mortgage has an interest rate that changes based on the market (typically tied to the Bank of Canada’s prime rate). If interest rates go down, so do your payments—but if they go up, you’ll pay more.
Pros:
✔ Lower initial rates compared to fixed mortgages
✔ Potential to save money if interest rates decrease
✔ More flexible prepayment options with some lenders
Cons:
✘ Monthly payments may increase if rates rise
✘ Harder to budget due to fluctuating payments
A variable-rate mortgage is ideal for borrowers who can handle some risk and want to take advantage of potentially lower rates over time.
Which One Should You Choose?
Here’s how to decide:
- If you prefer stability and long-term planning, go with a fixed-rate mortgage.
- If you’re comfortable with market fluctuations and want to take advantage of possible lower rates, a variable mortgage may be better.
- If you’re unsure, consider a hybrid mortgage that combines both fixed and variable rates.
Final Thoughts
Both mortgage types have their benefits, and the right choice depends on your financial situation and risk tolerance. Still unsure which option is best for you? Let’s discuss your goals and find the perfect mortgage for your needs.