Fixed Rate Vs. Variable Rate

Fixed Rate Vs. Variable Rate

The age-old “Fixed Mortgage Rate Vs. Variable Mortgage Rate” debate rages on as borrowers determine which one makes the most sense. Generally speaking, we’ve always preferred variable rates, but it ultimately depends on your financial profile and prevailing market conditions. The characteristics listed below for each type of mortgage assumes full features and no restrictions.

Fixed Rate Mortgage

  • A fixed mortgage rate doesn’t change throughout the term, which offers you the peace of mind of knowing that your payment won’t change.
  • You’ll pay the greater of 3 months interest or the interest rate differential (IRD) when you discharge the mortgage.
  • If you sell your property, you can port the mortgage to a new property within 30-120 days without penalty.
  • If you need to borrow additional money against your property, you can avoid a penalty by blending the rate.

Variable Rate Mortgage

  • A variable mortgage rate fluctuates with the prime rate, which implies that it can go up or down during the term. Some variable-rate payments are constant; therefore, in the event the rate changes, the principal and interest equation will also change.
  • You’ll only ever pay 3 months’ interest to break a variable rate mortgage, which is both nominal and predictable.
  • A variable rate is typically not portable in terms of rate, but oftentimes you’ll be able to avoid the penalty by staying with the same lender.
  • If you need to borrow money against your property, you can’t blend the rate per se; however, you may be able to get your penalty waived by staying with the lender.

Typically, interest rates are higher on a fixed rate mortgage compared to the variable rate option, but this is not always the case. Over time, variable rates have outperformed fixed rates; however, the key advantage in our humble opinion is the penalty predictability. We take comfort in knowing that the exit strategy for a variable mortgage is only 3 months interest, which is immaterial. Ultimately, it comes down to a borrower’s risk profile, circumstances and market conditions.

What should you do in today’s market?

Our Variable Vs Fixed Calculator will help you decide which rate is better for you!

What should you do in today’s market?

Our Variable Vs Fixed Calculator will help you decide which rate is better for you!

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