Fixed vs. Variable Rate
Learn The Differences and Which Is Right For You
Fixed vs. Variable Rate Guide / FAQ:
- What Is A Fixed Rate?
The payment and the interest rate will not change throughout the life of the term.
In exchange for a fixed rate term, your lender will charge you a higher pre-payment penalty if you look to restructure, refinance, or switch lenders.
- What Is A Variable Rate?
Your variable mortgage rate can fluctuate throughout the term.
- What Causes The Variable Rate To Fluctuate?
The Bank of Canada meets atleast 8 times a year to discuss the key interest rate.
This is what impacts the bank's decision to increase or decrease the prime rate.
That prime rate is what impacts your variable rate.
- How Much Would The Variable Rate Change?
When a change occurs, it is typically by one quarter percent.
Example:
If you borrowed $100,000 your payment will increase or decrease by $12.
- Which Rate Provides More Flexibility?
A variable rate provides you with more flexibility.
Your payment can go up but there is a possibility it can go down.
If you have a change in your life, having a variable rate will allow you to get out of that mortgage with a maximum of three months interest penalty.
Some bank fixed rate mortgages can be up to 5% of the loan amount. On $500,000 that is a $25,000 penalty, The same cancellation with a variable rate calculated at three months would be $2,000-$2,500.