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With big milestones come big decisions. Like choosing between a fixed or variable mortgage rate. There’s no one-size-fits-all answer to this question — the choice has to make sense for you. Do you want something steady and predictable? Or are you happy to ride the ups and downs? Finance-speak can be confusing, so we’re here to break down these options without judgment or jargon.
Fixed-rate mortgages: The 9-to-5 of mortgage rates
In Canada, fixed-rate mortgage terms typically range from one to five years. Throughout that period, your interest rate is set in stone. No matter what happens with the Bank of Canada, your payments will stay the same.
Why people like it:
Peace of mind: Especially if you keep a tight budget or want consistency and stability.
Less anxiety: You won’t be up at night googling “Bank of Canada interest hike.”
Protection from rising rates: Market increases? Not your problem.
The trade-off:
A higher starting cost: Security comes with a cost. Fixed rates are typically slightly higher than variable rates.
Hefty penalties for breaking your mortgage early: We’re talking in the thousands. Keep this in mind if you’re planning to move or refinance early.
Variable rate mortgages: A roller coaster you may want to ride
Why people like it:
Lower starting cost: Variable-rate mortgages typically have lower starting rates than a fixed-rate mortgage.
Historically cheaper: A 2021 study from the Bank of Canada revealed that homeowners with variable mortgage rates paid less about 88% of the time over the last 25 years.
Flexibility: Life happens, and plans change. If you need to break your mortgage, the penalties for breaking a variable rate one are typically only three months’ interest.
The trade-off:
Uncertainty: If you’re not good with stress or change, this option may not be for you.
Rate increases = higher payments: If you’re working with a tight budget, this could hurt.
To sum it up
Unfortunately, there is no universal “right” answer to this question.
We asked one of our lawyers to weigh in, and here’s what they had to say.
“When deciding between fixed and variable rate mortgages, you should consider your financial circumstances and lifestyle to determine what would work best for you. Fixed rates offer more predictability, as your mortgage payments and interest rate will not fluctuate over the term. Variable interest rates, however, offer more flexibility, as initial interest rates are typically lower than fixed rates and there is often an option to convert the mortgage to a fixed rate.” - Ariana Serapiglia
If you hate the unknown, crave stability, and are working with a tighter budget, you may want to explore a fixed-rate mortgage.
However, if you are comfortable with risk, in a transient state, and think rates could drop, the variable-rate mortgage may be for you.
It’s essential to speak with a mortgage expert, run the numbers, and make a decision that aligns with your life (and bank account). Mortgages are long-term commitments, but your decision shouldn’t keep you up at night.
Want to do some more digging? Here’s a mortgage calculator from CMLS that may be helpful.