How To Choose Between a Fixed-Rate and Variable-Rate Mortgage

Fixed or variable? It’s a big decision within the mortgage-getting process, and we can help you make it.
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Pretty much everyone who’s ever purchased a home needed to get a mortgage to do so. Finding a mortgage isn’t that hard - there are hundreds of mortgage lenders in Canada. The hard part is making decisions. Which lender? How long of a mortgage? Will you need to repay it early?
And perhaps the biggest question of all: do you choose a fixed or a variable mortgage?
First off, it’s important to understand the difference between the amortization period and the mortgage term. The amortization period is the total length of the mortgage; in Canada, it’s often as long as 25 years. The mortgage term, meanwhile, is a shorter section of the full amortization period. 5 years is a common mortgage term, so you’ll often have at least 4-5 terms before you pay back the whole mortgage.
At the end of each mortgage term, you’ll be able to renegotiate the terms. That means choosing a new type of mortgage, with new interest rates, and even (if you want) a new mortgage lender. So, when we’re talking about choosing fixed or variable mortgages, we’re talking about the term, not the amortization period.
Fixed and variable refer to the interest rates you’ll have to pay on your mortgage loan. A fixed-rate mortgage means the interest rate is fixed - it won’t change during the mortgage term. Your payments will be perfectly stable. A variable-rate mortgage, meanwhile, can move up and down during the mortgage term, based on the lender’s prime rate - the basic rate they use to calculate interest for all their loans.
Fixed-rate mortgages mean stability and predictability, which many people value. It’s certainly easier to budget when your mortgage payments are always identical. Variable-rate mortgages, meanwhile, often allow for flexibility, including accelerated or early payments. Variable rates can (and historically have been) lower than fixed rates. However, they can also be higher, particularly during periods of rapid interest rate increases like those in 2021 and 2022 - in this scenario, variable-rate mortgages felt the rate hike much sooner and more acutely than fixed-rate mortgages.
So ultimately, choosing between fixed- and variable-rate mortgages comes down to a choice between predictability and flexibility/risk. Which do you prefer?
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00:00 Intro
00:47 Mortgage terminology
02:00 Payment terms
02:21 Interest rate
02:54 Fixed-rate mortgages
03:23 Variable-rate mortgages
04:17 Choosing fixed vs. variable
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