Choosing the right mortgage can feel overwhelming, especially with fluctuating interest rates and a variety of options available. Understanding the differences between fixed-rate, variable-rate, and adjustable-rate mortgages (ARMs) can help you make an informed decision that aligns with your financial goals.
Fixed-Rate Mortgages: Stability and Peace of Mind
A fixed-rate mortgage locks in your interest rate for the entire term, ensuring consistent monthly payments. According to a 2024 survey by Mortgage Professionals Canada, 75% of borrowers selected fixed-rate mortgages, though interest in variable rates increased later as the Bank of Canada introduced rate cuts.
Since fixed-rate mortgages are not directly tied to Bank of Canada policy rate changes, they provide financial stability and predictable payments, making budgeting easier.
Best for:
Homeowners who prioritize financial security.
Those planning to stay in their home for the full term.
Borrowers expecting interest rates to rise.
Benefits:
Considerations:
Higher starting interest rates compared to variable or adjustable mortgages.
Breaking the mortgage early can result in higher prepayment penalties.
Less flexibility if rates drop during your term.
Variable-Rate Mortgages: Potential Savings with Some Risk
A variable-rate mortgage (VRM) fluctuates based on the lender’s prime rate, which is influenced by Bank of Canada decisions. While your payment amount may remain the same, the portion applied to interest versus principal can change as rates shift.
Best for:
Borrowers comfortable with some risk and potential payment changes.
Those who believe rates may stay low or decrease.
Homeowners considering selling or refinancing before the term ends, as variable-rate mortgages typically have more predictable penalties than fixed-rate options.
Benefits:
Historically lower interest rates compared to fixed-rate mortgages.
Opportunity to save when rates decrease.
More predictable prepayment penalties than fixed-rate mortgages.
Considerations:
Adjustable-Rate Mortgages: Market-Responsive Flexibility
An adjustable-rate mortgage (ARM) differs from a VRM in that both the interest rate and monthly payment adjust when the lender’s prime rate changes. ARMs are available from select lenders, including Scotiabank and National Bank, as well as various Mortgage Finance Companies.
Best for:
Benefits:
Lower starting rates compared to fixed or variable mortgages.
Cost savings when interest rates decrease.
More predictable prepayment penalties than fixed-rate mortgages.
Considerations:
Payments adjust with interest rate changes, which can lead to increased costs.
Budgeting requires flexibility to accommodate fluctuating monthly payments.
Which Mortgage is Right for You?
Selecting the right mortgage depends on your risk tolerance, financial situation, and long-term homeownership plans. Fixed-rate mortgages provide security and predictability, while variable and adjustable-rate mortgages offer savings opportunities with more uncertainty.
Get Personalized Mortgage Advice
Not sure which mortgage fits your needs? I can help you explore your options and choose the best mortgage for your financial situation. Whether you value stability or want the potential savings of a variable or adjustable rate, I’ll guide you through the process with expert advice.
Reach out today to start your mortgage journey with confidence!