Ever wondered if you should get a variable rate or a fixed rate mortgage but didn’t know the difference? We know that shopping around can feel overwhelming at times. For your convenience, we’ve prepared a quick summary that looks at the differences, main benefits as well as disadvantages that come with these different products.

 

What is a fixed rate?

 

When choosing a fixed mortgage rate, the rate is locked for a period of time depending on your term. Terms may range from 1 year to even 10 years. These vary in length and can be well outside of these parameters.

 

If you are able to find a rate that you are happy with and would like to fix that for a term, once this is set, the interest rate does not fluctuate alongside market conditions. If you also have a set budget and require the security of a certain payment amount, a fixed rate mortgage may work best for you.

 

These rates are typically higher however than those that are variable. Advertised rates also change on a regular basis. If you go with a shorter term and would like to review your options again sooner, you may also consider this as an option.

 

Another item to consider is what happens if you decide to ‘break’ your mortgage and pay out the loan early. In this case, penalties may apply.

 

 

What is a variable rate?

 

With a variable rate mortgage, mortgage payments are set for the term, however the interest rate may fluctuate during that time. Usually, if the interest rate goes up, more of each payment would go towards the payment of interest, and if the interest rate goes down, more of the payment goes towards paying down the principle.

 

If your financial institution offers a variable rate mortgage at the outset, the rate is often lower than the fixed rate mortgage on offer. This product may also assist you in qualifying for a larger amount.

 

As the rates depend on the Bank of Canada, variable rates may be lower as they tend to use a rate discounted off the Prime Rate (often based on the Bank of Canada Rate, e.g., Prime Rate -1%) or above the Prime Rate.  However, if the prime rate increases, the interest rate will also increase as well. Variable rate mortgages may also come with a closed or open option which is something that you should consider depending on your circumstances.

 

 

To find out the rates are available for you and what works best for your loan, please reach out to a financial advisor. We may also be able to assist you in finding someone to work with you and find the right product. Please feel free to reach out to us at 905 787 2296 or info@legaldirect.ca