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Fixed or variable – which mortgage is right for me?

Different kinds of mortgages appeal to different types of borrowers. Ask your mortgage professional to help you decide which option is right for you.

Fixed Rate Mortgage

With a fixed rate mortgage, your interest rate won’t change throughout the term of your mortgage. There are no surprises; you’ll always know exactly how much your payments will be and how much of your mortgage will be paid off at the end of your term. If interest rates go up, you’re protected. But if they go down, you don’t benefit – you still pay the same rate.

Variable Rate Mortgage

When you agree to a variable rate mortgage for the length of you term, your payments will depend on fluctuating interest rates. (Rates rise and fall with the bank’s prime lending rate, and may vary from month to month.) When interest rates change, your monthly or bi-weekly payment amount will stay the same, but the amount that is applied to the principal will change. For example, if interest rates drop, more of your payment ends up being applied to the principal – but if they go up, you’ll end up paying more in interest and less towards your principal, which can mean it will take longer to pay off the loan.

Fixed and variable mortgage rates compared

  Fixed Mortgage Rate Variable Mortage Rate
  You’re locked in at a specific rate for the term of the mortgage. Your rate fluctuates with the prime rate.
Pros Stays the same whether rates rise or fall. Great if you need stability.
Examined historically, variable rates have proven to be less expensive over time.
Cons If the difference between the variable and fixed rate is significant, it may not be worth paying a premium for the stability protection of a fixed rate. Significant increases in the prime rate will increase your interest payable and you will end up paying more over the life of your mortgage.

Popularity of fixed vs. variable mortgage rates

Fixed 66% of Mortgages
Variable 26% of Mortgages
Combination 8% of Mortgages

Source: Canadian Association of Accredited Mortgage Professionals (CAAMP) November 2013 Annual State of the Residential Mortgage Market in Canada Report