Choosing the right mortgage: Fixed rate or variable rate?

Whether you’re already a homeowner or you’re getting ready to buy your first home, a lot of questions can come up when it’s time to choose a mortgage. Your choice will largely depend on what’s most important for you, especially in times of economic uncertainty: paying off your loan as quickly as possible or maintaining maximum flexibility. Here are some things you need to know to make an informed choice. 

Contrary to popular belief and subject to certain conditions that apply to specific products, your payment amounts will usually be fixed for a period of time, whichever type of rate you choose. Here are some of the key features of each rate type.

A fixed interest rate on a closed loan remains the same for the entire term. Your payments stay the same too, unless you decide to increase them. You can pay up to double the amount indicated in your initial agreement if you want to, without any prepayment charges. Contact a mortgage advisor to see if this strategy works for you or to increase your payment amount. How your payment is split between principal and interest will change over time. As your balance goes down, you pay less interest and more of your payment goes toward your principal. A stable interest rate and payment amount means you’ll know what your loan balance will be at renewal. This means you’ll avoid potential surprises related to interest rate fluctuations. But this stability and peace of mind come at a price. The fixed rate is generally higher than the variable rate available at the same time.

Finally, if you want to end your contract early (for example, because you’re selling your property), you may have to pay a penalty. The penalty amount is based on a number of variables, which are usually set out in your loan agreement.

A variable rate increases or decreases with our prime rate. This might work for you if you have a good risk tolerance and want to take advantage of possible rate drops to save on interest.