When you get pre-approved for a mortgage, one of the first decisions you will face is whether to choose a fixed or variable rate. Understanding the difference between the two will help you make a choice that fits your comfort level and financial goals.
A fixed-rate mortgage means your interest rate stays the same for the entire term, usually one to five years. This gives you predictability and stability. Your payments will not change, even if rates rise in the market. Many buyers like this option because it makes budgeting easier and offers peace of mind.
A variable-rate mortgage fluctuates based on the lender’s prime rate, which moves with the Bank of Canada’s interest rate decisions. When rates go down, your payments may decrease or more of your payment will go toward the principal. When rates go up, your payments or amortization may increase.
Fixed rates provide security, while variable rates offer flexibility and potential savings if rates decline. The right choice depends on your financial situation and tolerance for risk.
If you want certainty and predictability, a fixed rate is a good fit. If you have room in your budget and prefer to take advantage of possible savings, a variable rate may work better. Some buyers choose a hybrid mortgage, combining both for balance.
Before you decide, compare both options with your lender or broker. They can help you understand how rate changes would affect your monthly payments and overall costs.Want to find out which mortgage type suits your goals?
Let’s review your numbers together and choose the strategy that fits your budget and comfort level.