A fixed rate provides rate certainty during the term. A variable rate introduces the possibility of change. The better fit depends on your budget, plans and the contract.
The case for predictability
With a fixed-rate mortgage, the interest rate stays the same during the term. That can make planning easier. Your rate can change when the term renews, and breaking the mortgage early may create a substantial charge.
Understand how variable payments work
A variable rate follows changes in the lender’s prime rate. Some products change the payment as rates change; others initially hold the payment steady and change the principal-interest split. Ask what happens if the payment no longer covers interest.
Compare the contract, not a forecast
Nobody can guarantee where rates will go. Ask about prepayment privileges, conversion to a fixed rate, portability, penalties and payment changes. Consider whether you could absorb a higher payment without straining your budget.
Use scenarios to make it concrete
Enter a few different rates in the payment calculator using the same mortgage balance and amortization. It models a fixed rate with semi-annual compounding; your actual variable-rate calculation may differ. Discuss the range of payments with your mortgage professional.
Ask about payment mechanics
For any variable product, ask what changes when prime changes: the payment, the principal repaid, or both under specified conditions. Ask how the lender deals with insufficient interest coverage. Compare this with fixed-rate payment certainty and the consequences of ending either contract early.
How does this apply to your plans?
No obligation. A personal conversation with Tajwar.
Further reading: FCAC: Choosing a mortgage
General information, not a commitment to lend. Mortgage eligibility, costs and terms depend on your circumstances and the lender.