If you're buying a home or renewing your mortgage, one of the biggest decisions you'll face is choosing between a fixed or variable rate. Both have their advantages, and understanding how each one works — especially when rates move — can save you thousands of dollars over the life of your mortgage.

What Is a Fixed-Rate Mortgage?

A fixed-rate mortgage locks in your interest rate for the entire term of your mortgage (commonly 1, 2, 3, or 5 years in Canada). No matter what happens in the economy or what the Bank of Canada does with its overnight rate, your rate — and your payment — stays exactly the same.

What this means for you:

• Your monthly payment never changes during your term
• Budgeting is simple and predictable
• You're protected if rates rise
• You won't benefit if rates fall

Fixed rates are typically slightly higher than variable rates because you're paying a premium for that certainty. For homeowners who value stability and want no surprises, a fixed rate is often the preferred choice.

What Is a Variable-Rate Mortgage?

A variable-rate mortgage has an interest rate that moves with the lender's prime rate, which is influenced by the Bank of Canada's overnight rate. When the Bank of Canada raises or lowers its rate, your mortgage rate follows.

Variable rates are usually expressed as "prime minus" a set percentage — for example, prime − 0.75%. So if prime is 5.45%, your rate would be 4.70%.

What this means for you:

• Your rate can go up or down throughout your term
• You often start with a lower rate than fixed
• You may save money if rates stay flat or decrease
• Your payments or amortization can be affected when rates change

What Happens to Your Payments When a Variable Rate Changes?

This is the part that surprises many homeowners. How a rate change affects you depends on the type of variable mortgage you have.

Adjustable-Rate Mortgage (ARM)

With an adjustable-rate mortgage, your monthly payment changes when the rate changes. If rates go up, your payment goes up. If rates go down, your payment goes down. You always know your payment is covering both principal and interest on schedule.

Variable-Rate Mortgage with Fixed Payments

Some lenders offer a variable rate but keep your payment amount the same even when rates change. Instead, the split between principal and interest shifts.

• If rates go up, more of your payment goes toward interest and less to principal — meaning you pay down your mortgage more slowly
• If rates go down, more of your payment goes toward principal — meaning you pay it down faster

This sounds convenient, but it can lead to a situation called a trigger rate — the point at which your fixed payment no longer covers the interest owing. If that happens, your lender may require you to increase your payment, make a lump-sum payment, or restructure your mortgage.

A Quick Side-by-Side Comparison

So Which One Is Right for You?

There's no one-size-fits-all answer — it depends on your financial situation, risk tolerance, and outlook on interest rates. A few questions worth asking yourself:

• Would a higher payment cause financial stress? A fixed rate may offer better peace of mind.
• Are you planning to sell or refinance before your term ends? Variable rates typically have lower penalties to break.
• Are interest rates expected to hold steady or decrease? A variable rate may work in your favour.

The best mortgage is the one that fits your life, not just the one with the lowest rate on paper.

Let's Talk About Your Options

Whether you're a first-time buyer, renewing, or refinancing, I'm here to help you understand your choices and find a mortgage that works for your goals. Reach out today for a no-obligation conversation — I'll help you make sense of the numbers and make a confident decision.

📞 647-400-2620 ✉️ [email protected] 🌐 www.realtorsunnyg.com

This post is for informational purposes only and does not constitute financial advice. Always consult a licensed mortgage professional before making decisions about your mortgage.