What is a Variable Rate Mortgage?

Variable rate mortgages fluctuate with the prime rate. They are traditionally priced at a lower rate than the current fixed options, but if prime goes up so does the rate. That being said if prime goes down you benefit from that. The one ace in the pocket is that you can lock in at any time to a fixed term equal to the time remaining on your variable. Some people have saved a lot of money taking variable rates.

What is a Fixed Mortgage?

A fixed mortgage is pretty straightforward.  You get the rate indicated for the time frame it’s priced for. Regardless of market, you’re guaranteed to pay that rate for that time. The advantage is that if rates go up, you’re locked in lower. But if rates go down, you can’t change yours without penalties and may pay higher in the long run. It really comes down to risk tolerance and in my opinion, the spread of rate you’re getting on a variable to a fixed is a big determining factor.

The lower the variable rate is to the fixed rate comparable product, the less risky as you can lock in if rates go up and still be under the fixed rate you choose not to take. The reverse is also true and a small spread between these products could lead to the variable going up over the fixed rate that you could have been locked in for.

We’re often asked if variable or fixed is a better way to go. It really depends on you and your risk tolerance, the market outlook of course, and current spread (risk mitigation) are things to consider when choosing fixed rate or variable