What's the Difference Between Fixed and Variable Mortgages?

When purchasing a home in Ontario, choosing the right mortgage is one of the most critical financial decisions you’ll make. One of the first decisions you’ll encounter is whether to go with a fixed-rate mortgage or a variable-rate mortgage. Let’s explore these options, their pros and cons, and help you decide which might be best for your unique situation.

What is a Mortgage?

A mortgage is essentially a loan specifically designed to help you buy a property. In Canada, mortgages generally come with two types of interest rate options fixed and variable. Understanding these two terms is key to choosing the mortgage that aligns with your financial goals.

What is a Fixed-Rate Mortgage?

A fixed-rate mortgage has an interest rate that remains constant throughout the loan term, whether it’s 2, 5, or 10 years. This means your monthly payments stay predictable, which is ideal if you value stability.

Advantages of Fixed Mortgages

• Predictable Payments: Your payments remain the same, no matter what happens to market interest rates.
• Protection from Rate Hikes: If interest rates rise, your rate and payments remain locked in.

Disadvantages of Fixed Mortgages

• Higher Initial Rates: Fixed rates are typically higher than variable rates at the start.
• Missed Opportunities: You won’t benefit from a rate drop during your term.

What is a Variable-Rate Mortgage?

A variable-rate mortgage, on the other hand, fluctuates based on the Bank of Canada’s prime rate. This means your payments can increase or decrease depending on market conditions.

Advantages of Variable Mortgages

• Lower Initial Rates: Historically, variable mortgages have offered lower rates compared to fixed mortgages.
• Potential Savings: If interest rates fall, you benefit from reduced monthly payments.

Disadvantages of Variable Mortgages

• Unpredictable Payments: Payments can rise if interest rates go up.
• Higher Risk: Rate hikes could lead to financial strain if you’re not prepared.

The Key Differences of Fixed vs Variable Mortgage Canada​

Here’s a quick comparison:

‍Factors to Consider When Choosing

1. Your Financial Stability: If you have a steady income and prefer predictability, a fixed-rate mortgage might suit you best.
2. Market Conditions: If interest rates are expected to rise, locking in a fixed rate can save you money. However, if rates are likely to drop, a variable rate could be advantageous.
3. Loan Term: For short-term loans, variable rates can offer more savings, while fixed rates work well for long-term plans.

According to a 2022 report by the Bank of Canada, around 60% of Canadian mortgage holders opt for fixed rates to avoid the uncertainty of rate fluctuations. 

When to Choose Fixed Over Variable (and Vice Versa)

Fixed is better if... You value financial stability and predictability, especially in times of rising interest rates.

Variable is better if... You’re comfortable with market fluctuations and are financially prepared for the potential of higher payments.

Also Read: Will Mortgage Rates Go Down in 2025 in Canada?

Making the Right Decision

Choosing between a fixed or variable mortgage ultimately depends on your financial goals and risk tolerance. Working with a mortgage broker who understands the Ontario market is invaluable in navigating these options.

Let’s Find the Right Mortgage for You

Still unsure which mortgage is best for your situation? At Wilson Mortgage Broker, we specialize in helping Niagara and St. Catharines homeowners make informed decisions. Whether you’re a first-time buyer or considering refinancing, we’re here to guide you through every step of the process. Call us today at 1-800-969-0014 or book a consultation here.

Let us make your home-buying journey smooth, informed, and stress-free.