Mortgage 101: Fixed vs Variable Rates - Mortgage Guys
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Mortgage 101: Fixed vs Variable Rates

Fixed vs Variable mortgage rates

Variable Rate Mortgage

This is a mortgage in which the interest of mortgage rates is periodically changed to conform to market conditions. It is a rate that can appeal to some homeowners and investors due to it being based on the prime rate and usually it is lower than the fixed rate. Repayments are in general fixed over a determined time period and if the interest rates decrease, a larger portion of your payment is contributed to the principal amount. In the event of a rate increase, less is attached to the principal sum. This influences your mortgage amortization term, or the number of years determined for repayment of the debt.

The open variable-rate mortgage allows you to decide the amount you initially put down and the option to settle the full outstanding mortgage sum at any time. You are also able to change to another term without charge, with payments usually fixed during the mortgage term. This is the ideal solution if you experience fluctuations in your cash-flow. It allows for a lump sum mortgage settlement payment and if you are selling your home, or believe mortgage rates will decrease you can prepay more than 20% of the outstanding mortgage amount.

Fixed Rate Mortgage

Historically, the 5-years fixed mortgage option has been popular in Canada, due primarily to the decline in interest rates. Accordingly, the decision to commit to a fixed rate mortgage agreement is a natural choice for some. This is borne out by recent figures showing variable interest rates in the region of 3%, while fixed rate mortgage products were obtainable at just below 4%!.

There are some qualified professionals who believe the risk attached to variable mortgage rates compared to the benefits cannot be justified. For anyone buying their first home and fixed rates are seen as being within a percentage point of the variable rating, then the fixed option should be the preferred one. The majority of first-time home buyers are understandably risk averse. They are generally starting out in life and have family considerations. They are, therefore, likely to choose a fixed mortgage option as it enables them to budget for their mortgage term. Adding to this are the additional costs incurred in purchasing a new home and its maintenance. They are factors that can consume a large part of their income, and not allow sufficiently for potential rate increases!

At Mortgage Guys, we can help you find the best fixed rate mortgage option. Let our lenders find the best rates for your home mortgage needs. We are prepared to find the best deals in the industry so that you can pay less to own your home.