Variable or Fixed: Which Rate Is Best for You?
Right now, you can save a lot more with a variable rate than with a fixed rate.
Based on True North Mortgage’s current rates, the above savings might seem a little shocking. But does that mean a variable rate is the right choice for you?
Your rate type can have a big impact on your mortgage affordability and monthly budget. A variable rate may provide more savings over a typical five-year term, but your rate and payments can change (tied to Bank of Canada rate fluctuations). A fixed rate is just that — your monthly payments won’t change, but you’ll likely pay more for the budget consistency.
Variable rates are all but guaranteed to go up — it's fixed, so how much and how fast are the unknowns. But with the current spread, variable rates have a long way to climb before they stop making savings sense.
A lower variable rate means you will:
Likely save thousands compared to current fixed rates
Pay more down on your principal Save on interest costs
Need to budget for higher payments if the prime rate increases
Need advice on when to switch to a fixed rate Pay lower penalties should you decide to break your term
A higher fixed rate means you will:
Be protected against rate increases Have consistent monthly payments during your term
Likely have higher payments compared to a variable rate
Pay more for interest costs
Pay higher penalties should you decide to break your term
Want to look for your best fixed rate to save more
The choice can be personal, based on your financial situation and comfort level with changing rates and payments.
And despite the variable savings on current rates, many first-time home buyers may feel more secure with a fixed rate.
Just as important as the rate you choose are the flexibility and fine print of the mortgage you get. You’ll want to make sure that your rate doesn’t come with hidden fees or sneaky restrictions that’ll cost you more when you least expect it. *Rates as of March 14, 2021. Illustrative purposes only. Makes assumptions that may not reflect all situations. Please consult a True North Mortgage broker for accurate numbers.