When it comes to mortgages, one of the biggest decisions you’ll make is whether to go with a fixed or variable rate. At first glance, it might seem like a simple choice—fixed means stability, and variable means flexibility—but there’s a lot more to it.

If you’ve been asking yourself, “Which one is better for me?” you’re not alone. Let’s break it down in simple terms so you can feel confident making the decision.

What Is a Fixed Rate Mortgage?

A fixed-rate mortgage means your interest rate stays the same for the duration of your mortgage term, which is typically 1 to 5 years.

The biggest appeal of a fixed rate is predictability. You’ll know exactly how much your monthly payments will be, which makes budgeting much easier.

For example, if your fixed rate is 5%, it will stay at 5%, even if the Bank of Canada changes its rates.

“Think of a fixed rate as the safe choice—it’s steady, reliable, and won’t surprise you.”

Pros of Fixed Rates:

• Stability: Your rate and payments won’t change, no matter what happens in the market.
• Peace of Mind: If rates rise during your term, you’re protected.
• Budget-Friendly: It’s easier to plan long-term expenses when your payments are consistent.

Cons of Fixed Rates:

• Higher Starting Rate: Fixed rates are usually higher than variable rates at the start.
• Limited Flexibility: Breaking your mortgage early can come with hefty penalties, especially if rates drop and you want to refinance.

What Is a Variable Rate Mortgage?

A variable-rate mortgage is tied to your lender’s prime rate, which is influenced by the Bank of Canada. This means your rate (and payments) can fluctuate during your mortgage term.

For example, if the prime rate goes up, your interest rate and payments will also increase. On the flip side, if rates drop, you’ll save money.

“Think of a variable rate as the adventurous choice—it can save you money, but it comes with some risks.”

Pros of Variable Rates:

• Lower Starting Rate: Variable rates are often lower than fixed rates at the beginning.
• Potential to Save: If rates go down, so do your payments.
• More Flexible Terms: Breaking your mortgage typically comes with lower penalties compared to fixed rates.

Cons of Variable Rates:

• Unpredictable Payments: If rates rise, your payments will go up, which can make budgeting harder.
• Higher Risk: You’re at the mercy of the market. If rates spike, you could end up paying significantly more.

How Do You Choose?

The choice between fixed and variable comes down to your financial situation, risk tolerance, and long-term plans.

• If You Value Stability: A fixed-rate mortgage is likely your best bet. It’s ideal if you want to “set it and forget it” without worrying about fluctuating payments.
• If You Can Handle Some Risk: A variable-rate mortgage can save you money in a low-rate environment, but only if you’re comfortable with the possibility of higher payments later.

Here’s a quick example:
If you’re borrowing $400,000 over 25 years:

• At a fixed rate of 5%, your monthly payment would be about $2,326.
• At a variable rate starting at 4%, your monthly payment would be $2,104—but it could increase if rates rise.

“It’s not just about what’s cheaper today—it’s about what works for your financial future.”

What’s Happening in Today’s Market?

In today’s market, interest rates have been rising, making the decision even trickier. Many buyers lean towards fixed rates for the security they offer, especially during uncertain times.

However, variable rates could still be a good choice if you believe rates will level off or drop in the near future.

How to Make the Right Choice

If you’re still unsure, here’s how to narrow it down:

1. Know Your Budget: Can you handle fluctuations in your payments? If not, go fixed.
2. Think About Your Plans: Are you planning to stay in your home long-term, or might you need to break your mortgage? Variable rates often have lower penalties for breaking early.
3. Work With a Professional: A mortgage broker (like me!) can help you weigh the pros and cons based on your unique situation.

Final Thoughts

There’s no one-size-fits-all answer when it comes to fixed vs. variable rates. The “right” choice is the one that aligns with your goals, lifestyle, and risk tolerance.

If you’re feeling stuck, let’s chat. I’ll walk you through your options, help you crunch the numbers, and ensure you’re making the best decision for your future.

Buying a home is a big deal—but with the right advice, it doesn’t have to be a stressful one.

Reach out today, and let’s find the perfect mortgage rate for you.