Variable or fixed-rate mortgage? This has been a long-debated topic and a pressing question for many Canadian homeowners. Have you thought about what type of product you want for your mortgage?
Canadians tend to favour the security of a fixed-rate mortgage over a variable-rate mortgage. However, there are pros and cons for both.
Fixed-rate mortgages are “set and forget” for the duration of the mortgage term. The mortgage payments and interest rate will not change.
Pros
- Offers stability when it comes to budgeting expenses
- Your payments remain the same regardless of whether interest rates rise
Cons
- Greater penalty if you choose to break your mortgage agreement early
- If the difference between the variable and fixed-rate is significant, it may not be worth paying the premium
Variable-rates fluctuate with the “prime rate.” Meaning the interest portion of the mortgage payment varies.
Pros
- Often offer lower interest rates than fixed-rate mortgages (but not always)
- Lower penalties if you choose to break your mortgage early
- Proven to be less expensive over time
Cons
- Less financial certainty
- You need to monitor your mortgage a bit closely
- A significant increase in the prime rate will increase your mortgage payment
Generally speaking, if interest rates are relatively low but are about to increase, then it will be better to lock in your mortgage at that fixed-rate. On the other hand, if interest rates are declining, it would be better to have a variable-rate mortgage.
The decision ultimately depends on the market’s current state. Many of our clients chose variable-rates when they were higher than fixed-rates over the past 18 months, and those same clients are now enjoying rates that are well below what the fixed-rate options were back then.
I’m here to help you find the best suitable mortgage that meets your financial goals. Contact me today to discuss which option works best for you.