Fixed vs Variable 

Buying a home is a huge milestone. One of the biggest questions borrowers ask in this process is whether or not to have a fixed or variable rate mortgage? This will directly impact how much you pay both in principal and interest with each installment of the term. This decision could cost you thousands. Luckily we can help you make the best decision for you. 

Fixed Rate Mortgage 

With fixed rate mortgages your interest rate remains the same throughout the term of your mortgage (term is not your amortization period). Usually a term is  2,3 or 5 years.  

Benefits of fixed rate:

• Interest stays the same so you’ll have a great idea of what your installments for payment and can budget accordingly.. 
• Easier to understand 
• You will have confidence knowing what to budget for. 

Concerns of a fixed rate :

• Interests rate are often greater than that of a variable rate mortgage 
• Locked in at this rate for the term 
• If you break your mortgage, you will likely be facing penalties.

Variable Rate Mortgage: 

With variable rate mortgages your payments will stay the same throughout the term, but your interest may fluctuate. 

Benefits of a variable rate:

• Initial rates are often lower than that of a fixed rate mortgage. 
• An initial lower payment may help you qualify for a larger loan
• you can convert to a fixed rate at any time. 

Concerns of a variable rate:

• If the prime rate increases your interest rate goes up accordingly.  
• If this happens, your principal payments lower as your interest increases with each payment. 
• Much more difficult to budget. 

What Option is better?

This depends on your goals, financial situation, and of course, the market. Let’s start with the market. In today’s market most people aim for a fixed rate given recent rates have steadily climbed.! A fixed rate also gives you security knowing that you will not be hit harder by potential rate increases. This will allow you to budget for everyday expenses. 

Now if you have capital, the property you are purchasing is well within your budget and want to take a chance on the rates dropping over the next 2-4 quarters or at the very least maintaining current primes, then the variable rate could be for you. Again it comes down to what you are comfortable with. Purchasing a property is already stressful enough. You need to do what is right for you. 

Can you switch from a variable-rate to a fixed-rate mortgage?

You can change your mortgage rate type at the end of your term when you renew your mortgage. Some lenders also allow you to convert your variable rate to a fixed rate during your initial term without penalties, but at times going from Variable to fixed borrowers can be hit with penalties