Choosing between fixed and variable rate mortgages is one of the biggest decisions you'll make when getting a mortgage. With today's rate environment, understanding the pros, cons, and real-world implications of each will help you make the right choice for your situation.
Understanding the Basics
Fixed-Rate Mortgage
Your rate stays the same for the entire term (typically 5 years). Your payment never changes, regardless of what happens to interest rates.
Variable-Rate Mortgage
Your rate fluctuates with the Bank of Canada's overnight rate. When rates change, your rate changes too.
Current Rate Comparison
As of late 2024:
| Type | Typical Rate Range | ------ | ------------------- | 5-Year Fixed | 4.49% – 5.29% | 5-Year Variable | Prime - 0.50% to Prime + 0.50% | The "spread" between fixed and variable rates influences which makes more sense.
When Fixed Makes SenseChoose fixed if:
The peace of mind factor: For many, knowing exactly what they'll pay for 5 years is worth potentially paying slightly more. When Variable Makes SenseChoose variable if:
The flexibility factor: Variable mortgages typically have lower penalties if you need to break early. Not Sure Which to Choose?Talk to our team for personalized advice based on your specific financial situation and goals. The Historical PerspectiveHistorically, variable rates have saved money about 80-90% of the time compared to fixed over 5-year terms. However, the 2022-2023 rate hikes reminded everyone that this isn't guaranteed. Variable Rate TypesAdjustable Payment Variable:
Fixed-Payment Variable:
Breaking Your Mortgage: Penalty ComparisonIf you need to break your mortgage early: |
Type | Typical Penalty |
|---|---|---|---|---|---|---|---|---|---|---|
| Variable | 3 months' interest | |||||||||
| Fixed | Greater of 3 months' interest or IRD |
Variable penalties are usually significantly lower—often $3,000-5,000 vs. $15,000-25,000+ for fixed. Learn more about mortgage penalties.
FAQ
Q: Can I switch from variable to fixed?
A: Usually yes, but you'll get current fixed rates, not historical rates. Some lenders charge fees.
Q: What's the trigger rate?
A: The rate at which your fixed payment no longer covers the interest. Your principal stops decreasing or actually increases.
Q: Should I take a shorter fixed term?
A: Shorter terms (2-3 years) offer lower rates and more frequent renegotiation opportunities. Consider them if you expect rates to drop.
Q: What if I'm risk-averse but rates seem high?
A: Consider a shorter fixed term (2-3 years) to lock in stability while giving yourself a chance to renegotiate sooner if rates drop.
What's Next
There's no universally right answer—it depends on your financial situation, risk tolerance, and outlook. Get personalized advice to determine which rate type makes sense for you.
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Contact us today for personalized mortgage advice and competitive rates.
