Fixed or variable?  This is probably my most frequently asked question.  Most of my first time home buyer clients get advice from their friends, co-workers, parents or others within their social groups, and the majority of the time they're told that the fixed rate is the better option because it’s safer… but is it?  It's important that you are equipped with all the details around the mechanics of both fixed and variable rates before you contemplate a decision.  Is there a general right or wrong? The simple answer is no, it's very circumstantial and it comes down to which rate type fits your situation best. Let's go over some of the differences between the two…


A fixed rate is exactly what it implies, over the term of your mortgage it will never go up or down, it will always stay the same until it is time for renewal.  A variable rate on the other hand is the complete opposite as it can fluctuate up or down or stay the same depending on what the Bank of Canada (BOC) decides. There are eight meetings where the BOC decide whether or not to increase the rate, this decision is based on many external factors such as the state of the Canadian economy and the Bond Market among others.  Rates can go up or down by only .25% at a time.


A topic around interest rates that is very seldom talked about, but should be one of the key determining factors with which direction you will choose to go, are breaking fees.  I'll first mention that more than 50% of Canadian homeowners break their mortgage before the end of their term.  Let's face it, life happens. You may want to move to another house, or maybe your financial situation has changed or you need to relocate for work. There could be a number of unforeseeable reasons that may force you to break your mortgage.  This is why it's extremely important to know, that breaking your mortgage while on a variable interest rate, you will pay breaking fees equal to only 3 months of interest payments vs the whopping fixed rate breaking penalty which usually costs between 3 to 5% of the full mortgage balance!  Do the math.  We’re talking thousands to tens of thousands of dollars in difference.


Stop right here and ask yourself if you’re 100% sure that you will not break your mortgage within your mortgage term?  If not, strongly consider a variable rate. On the flip-side, if you are someone who will stay awake at night, worried about the possibility of a rate increase, and you are not very risk tolerant, then maybe a fixed rate is the better option for you.

So… fixed or variable? I hope it's not as clear a choice as you may have thought before reading this. There is no better or worse as long as you've done your homework and understand how both work as well as the risks associated with either.

It is always a very smart idea to speak a licensed mortgage professional who is in it for your interests.  It’s free.  As always, feel free to contact me with questions or comments.  I'll always be happy to give you a free assessments and mortgage advice without obligations.