The Difference between a Variable and Fixed Rate Mortgage

Many people are confused between the difference of a fixed rate mortgage and a variable rate mortgage. Don't fret the difference is fairly straight forward.

If you choose a fixed rate mortgage you get pay the same mortgage rate for the term you choose. This takes the fear out of rising interest rates and can make it easier to budget for most people. If you choose a 5 Year fixed mortgage at 5.09% is simply means that the rate you'll be paying will be 5.09% for the 5 years. If rates go up you're protected but if rates go down you have to stay with your term until the 5 years is up.

If you choose a variable rate mortgage the rate is tied to the Bank Prime Rate which is determined by the Bank of Canada. If the Bank of Canada lowers the Prime rate you benefit from a lower rate and if the Prime rate goes up so does your mortgage rate. Most lenders offer you the choice to convert from a variable rate mortgage to a fixed rate mortgage with no penalty.

At the time of this post most analysts believe the Bank of Canada won't be raising the Prime rate anytime within the near future and possibly even lower it.