Fixed vs. Variable Mortgage Rates | Comparing Pros and Cons | Ratehub.ca (2024)

FAQs

What are the pros and cons of a fixed-rate mortgage versus a variable rate mortgage? ›

If you have a fixed-rate mortgage, your interest rate and mortgage payments won't change during your mortgage term. If you have a variable-rate mortgage, your rate and payments can fluctuate. That uncertainty creates risk for the borrower, which is why variable rates have almost always been lower than fixed rates.

Fixing your mortgage for a set period means that you can ensure a large degree of financial stability. But going with a variable rate or tracker mortgage can mean your monthly outgoings may drop when interest rates come down. Read our guide to find out which is best for you.

My mortgage advice for 2024? Shop for your best rate — and consider a variable one. Around 2M Canadians are coming up for renewal in the next couple of years. Even if rates go down in 2024, homeowners will still take a budget hit from renewing at higher rates than they had previously.

Cash flow uncertainty: Because rates can change at any time, it won't be as easy for borrowers with a variable rate to predict cash flow over the long term. This inevitably means a variable loan requires more flexibility from the borrower.

Pros of variable rate mortgages can include lower initial payments than a fixed-rate loan, and lower payments if interest rates drop. The downsides are that the mortgage payments can increase if interest rates rise.

If you are worried about that your monthly mortgage payments could rise in the future, then fixing your mortgage rate remains a sensible choice. It means that it is important to shop around to find the best fixed-rate mortage deal as rates could remain elevated for some time.

If variable rates are expected to rise and stay elevated, switching to a fixed-rate mortgage can reduce the amount of interest you'll pay.. More stability. The primary risk of a variable-rate mortgage is that you never know how much interest you'll be paying from one Bank of Canada rate decision to the next.

Fixed-rate mortgages start out with one rate and aren't subject to future increases or decreases—the rate stays the same for the duration of the loan. To choose between them it helps to understand where their interest rates are now, how rates may change, and how long you plan to keep the home you're financing.

If, rather than going for a 25-year term, you choose a 30-year mortgage then your monthly payments will be reduced, giving you more cash to spend on things that are important to you. If you've struggled to get enough capital together for a deposit, a longer mortgage term makes owning a house more affordable today.

Will mortgage rates ever be 3% again? A few years ago, homebuyers could take out home loans with rates between 2% and 3%. Mortgage rates will fall over the next year, but they won't reach those levels. Housing market experts say it would take a significant economic crisis for mortgage rates to drop below 3%.

Do I want fixed or variable? ›

Interest Rate Trends and Forecast: In general, if you think interest rates are going up, locking into a fixed rate agreement is favorable (at least in the short term). If you think interest rates are going down, a variable rate agreement is ideal in the short term.

Locking in your variable rate does not mean you keep your current interest rate. Instead, it's a negotiation tool. Your lender will consider your current variable rate when negotiating for a fixed-rate mortgage. The penalty for making the change can depend on your lender.

Flexibiliy: Variable rate mortgages offer more flexibility than fixed rate mortgages, especially those with no early repayment charges (ERCs). If there are no ERCs, it can be easier for the individual to switch deals if a better fixed or variable mortgage rate enters the market.

Variable rate home loans give you more flexibility, but you may be impacted by interest rate rises. When you take out a variable interest rate home loan, there is often no limit on the amount of extra payments you can make – but always make sure you read the fine print.

The primary advantage of a variable rate mortgage is that the initial interest rate is often lower than the interest offered by fixed-rate mortgages. Since the initial interest rate is lower, you may be able to qualify for a larger mortgage than you would with a fixed-rate loan.

The primary disadvantage of the 30-year fixed rate mortgage is that you'll probably end up with a higher interest rate compared to a loan with a shorter term or an adjustable mortgage. That's the price you pay for the long-term stability.

They are appealing for those who plan to own their home for the long term and for those who want peace of mind knowing their loan repayments will be predictable.

However, the potential for interest rate changes, less stability and the possibility of increased monthly payments are drawbacks to consider. Ultimately, borrowers should carefully evaluate their financial situation, risk tolerance and future plans to determine if an ARM is the right choice for their needs.

Fixed-rate mortgages offer stability with a consistent monthly payment, shielding clients from market fluctuations. This can be particularly appealing to those who prioritize financial predictability and have long-term homeownership goals.