If you’re buying your first home or renewing your mortgage, you may have questions about fixed vs variable mortgage rates. These are important terms to understand because the choice you make will impact your monthly mortgage payment for years to come. At Interior Savings, we’re asked about the difference between these options on a daily basis, so please know that if you have questions about interest rates and mortgage repayment terms, you aren’t alone. We encourage you to ask away—clarity is important, especially when we’re talking about the largest purchase you’ll ever make.
Variable mortgage rates
A variable mortgage rate is just as it’s described: a monthly repayment amount with an interest fee that is subject to change (or vary) based on extenuating circumstances. A variable mortgage rate is tied to the Bank of Canada’s prime interest rate, our mortgage specialists explain, so if the prime lending rate increases, it is likely your rate is going to increase as well.
Variable rate mortgages may seem attractive when rates are low, but they come with more risk. If you choose this type of mortgage, you have to keep an eye on the markets and be able to withstand fluctuations. Interest rates can rise suddenly and if you can’t sustain a sudden increase in your monthly mortgage payment, this type of rate may not be ideal for your family. However, if you have the financial means to deal with a sudden rate increase, a variable rate mortgage may be an attractive option.
Fixed mortgage rates
A fixed mortgage rate is just that: a set rate that won’t change. You’ll agree to a monthly repayment amount and no matter what happens in the markets, that’s what you’ll pay until your term is up. There are no fluctuations as your rate is locked in for the duration of your mortgage term (typically 2-5 years). This is a great option for anyone who wants or needs stability in their monthly budget. Fixed mortgage rates are predictable, reliable and helpful in maintaining a consistent household budget.
The downsides to fixed mortgages are that you may end up paying a substantial fee to break your mortgage if you sell your home before your mortgage term is up. Fortunately, Interior Savings offers several options to help avoid these fees including porting your mortgage or our ‘Blend and Extend’ program—please contact your local Interior Savings mortgage specialist to learn more about these options.
The one unknown factor in a fixed rate mortgage is what rates will be like when you renew at the end of your term. For example, you may sign on to a fixed rate mortgage for five years at 3.2%. Five years later, the new fixed rate you’re offered could be higher (perhaps 3.9%) or lower (maybe 2.7%). The rate you’re offered upon renewal will depend on the markets so at that point, you may face challenges or, in the ideal scenario, score an even better rate.
Contact us for personalized guidance
There is no one-size-fits-all when it comes to mortgages, and a fixed or variable mortgage interest rate should be chosen based on your specific needs and financial circumstances. Some families need the stability of fixed costs while others can weather a bit of risk. It also depends on how long you anticipate staying in your home, as this could impact our recommendations.
To find out what type of rate is best for your family and what mortgage options are available to you now, please contact your local Interior Savings branch. One of our experienced, dedicated mortgage specialists would be happy to walk you through each scenario and help identify the best option for your family.