Fixed or variable – which mortgage is right for you?October 25, 2012
Many Canadians were choosing a variable mortgage until recently. A CIBC poll reported a shift to fixed rate mortgages due to the low mortgage rates as part of their plan to pay off mortgages faster.
So you may be wondering what the difference is between a fixed mortgage and a variable mortgage?
Fixed Rate Mortgages
This means that your interest rate on the loan will remain the same for the duration of the term. So, if you accept a five-year fixed rate mortgage at 3% for example, you will be paying 3% interest for the next five years unless you sell the home or refinance it during that period of time.
Variable Rate Mortgages
The interest rate on a variable rate mortgage fluctuates over time in harmony with the lender’s prime rate. Variable rate mortgages are based on the current prime rate plus a certain amount. As the prime rate changes, the amount of interest you are paying on your loan changes as well. Your payment amount will usually stay the same; but, the proportion that goes to the interest and the principle will fluctuate with the interest rate for the period of each payment.
To learn more, read our full article:
Choosing Your Mortgage: Loan Types and How They Work