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:
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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