Variable Rate and Fixed Rate Mortgages
What A Fixed Rate Mortgage Means To You
A fixed interest rate mortgage for the entire term length means that payments stay equal every month. For example a 5 year fixed mortgage with 6.2% interest will stay at 6.2% interest for 5 years, without changes.
What A Variable Rate Mortgage Means To You
A variable interest rate mortgage means that mortgage rates change every month. The interest rate may go up or down, affecting monthly mortgage payments. Interest rate is affected by Canadian economy and monetary policies set by the Bank of Canada.
Variable vs Fixed Rate Mortgage
- Mortgage with a variable rate has lower interest ratse than a fixed rate mortgage, but the rate may go up.
- Fixed rate mortgage gives you 100% certainty that payments will not change for entire mortgage term length.
Studies by Dr. Milevsky of York University have shown that between 1950 to 2007 one in seven Canadians who choose a variable rate mortgage saved an average $20,630 on interest payments per every $100,000 over a 15 year period, due to lower interest rates offered on variable mortgages.
Whether the variable rate mortgage or fixed rate mortgage turns out better depends on what happens to interest rates in the future, which no one knows. Ask yourself a question; is this the risk worth taking? Can I afford to?
Payments on a variable mortgage vary every month by around $20 and up to $250. If rates go down significantly, payments may decrease by an average of $100. If rates increase significantly, payments may go up by $100. Though you can save more, changing payments can cause a headache to your budget.
Fixed mortgage offers one stable payment, which doesn’t change.
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