Variable vs Fixed rate mortgage

Variable vs Fixed rate mortgage

When trying to decide which mortgage type to go with, a variable vs fixed rate mortgage, you have to ask yourself how tolerant you are with risk. A variable rate mortgage traditionally has a better discounted rate than the fixed rate mortgage, but it can change at any time depending on what decision the Bank of Canada makes on its overnight rate. As the Bank of Canada Bank of Canadaincreases or decreases its overnight rate, so too will the chartered banks and other lenders that borrow money from the Bank of Canada increase or decrease their prime lending rates, which in turn affects the variable rate.

If you don’t want to worry about interest rates going up or down during the contractual term that you have agreed upon with your mortgage, then the best bet would be to go with a fixed rate term. This way you know for sure that your mortgage interest rate is locked in and guaranteed not to change within the term. For example, if you go with a 5 year closed fixed term; your mortgage interest rate will not change until the end of the fifth year. For some, the disadvantage to this mortgage product is the fact that your rate will not go down should the Bank of Canada lower its overnight lending rate as would be the case with the variable rate mortgage product.

When contemplating whether to go with variable vs fixed rate mortgage, know that it is ultimately up to the lender to decide if they are going to change their prime rate or not every time the Bank of Canada changes their rate. Sometimes Banks and other lenders of mortgage products will choose not to change their prime rate although the Bank of Canada changes theirs. Historically though, whenever the Bank of Canada changes their overnight rate, shortly after the banks adjust their rates accordingly.

Others might be thinking to break their mortgage in the middle of the term; whether it be for the reason of selling their home to take advantage of increased equity and home value due to favorable market conditions, or because they may not be happy with the current lender or interest rate, and for any other reason. To break a fixed term mortgage is more expensive than to break a variable rate mortgage. The lenders use different formulas to calculate the mortgage penalty to break the mortgage. With the fixed term, the lenders use a formula called Interest Rate Differential, and with the variable rate they only charge the client three months of interest payments. Therefore it can be much cheaper to break a variable vs fixed rate mortgage.

When considering these matters it is always best to consult with a mortgage broker or mortgage agent. These professionals are trained, and licensed to work on your behalf and to give you unbiased and sound advice regarding your mortgage options.

Are Mortgage Rates on the Rise

Many are asking Are Mortgage Rates on the Rise?


Within the last month major Banks and other lenders have been slowly increasing their fixed term mortgage rates, and many people in Canada have been asking are mortgage rates on the rise here in Canada. are mortgage rates on the rise

What most consumers don’t know about their question of ‘are mortgage rates on the rise’ is that as the cost of doing business goes up so too does interest rates. One example of this cost is the purchase of bonds. As the prices of bonds increase so too potentially does the interest rates on fixed mortgage rates.

Another question one can ask is are mortgage rates on the rise on the variable side of the mortgage industry? The answer to this question is that for the time being they are staying put. Variable rate mortgage rates are based on the Bank of Canada prime rate and what it charges financial institutions to borrow money from it. The Governor of the Bank of Canada has hinted — see the press release here — that for the short term the Bank of Canada will not be raising rates.

Fixed Mortgage Rate

For many, the thought of knowing that your mortgage interest rate is set and will not change for the contract term is a piece of mind. The fixed mortgage rate is guaranteed not to change until the end of its contractual term; at which point the borrower will have to renegotiate with the existing mortgage lender or shop around for a better interest rate and mortgage term. This is another great example of how a mortgage professional can help you find the best mortgage product and interest rate.