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5.2.9 Fixed or variable interest rates

From: Financial Consumer Agency of Canada

There are a few factors to consider when choosing between a fixed and variable interest rate mortgage:

Fixed and variable interest rate mortgages
A fixed interest rate mortgage may be better for you if: A variable interest rate mortgage with variable payments may be better for you if: A variable interest rate mortgage with fixed payments may be better for you if:
  • You want to know that your interest rate or the amount of your regular payments is not going to change over the term of your mortgage.
  • You prefer knowing in advance how much of your mortgage will be paid off at the end of your term.
  • You think there is a good chance that market interest rates will rise over the term of your mortgage.
  • You do not like to take risks.
  • Your budget is tight, and there is no room for an increase in mortgage payments.
  • You are comfortable with the possibility that:
    • Your mortgage interest rate and payments could increase.
    • You could pay more in interest over the term of your mortgage than you would have paid with a fixed interest rate.
  • You follow interest rates closely.
  • You think there is a good chance of interest rates staying the same or dropping over the term.
  • You are comfortable with the possibility that:
    • Your mortgage interest rate and amortization period could increase.
    • You could pay more in interest over the term of your mortgage than you would have paid with a fixed interest rate.
  • You follow interest rates closely.
  • You think there is a good chance of interest rates staying the same or dropping over the term.

Studies have shown that the majority of borrowers with variable-rate mortgages save money in the long term, but that some borrowers pay more. In other words, you can potentially save money, but there is a risk that your interest costs will be higher. In each case, you have to make a choice based on the length of the loan agreement, the current interest rate and the likelihood that the rate will increase or decrease during the life of the loan.

Tip

Specific mortgage provisions vary from one lender to another. They are explained in the written mortgage agreement, but you can ask the lender to explain exactly how the provisions work. Compare agreements between different lenders to find the best arrangements for your needs.

To review these mortgage terms, see the video Mortgage basics.

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