Variable-rate vs. fixed-rate

Don’t butt heads over rates

Time, experience, market trends, and client satisfaction settled the matter long ago. Variable-rate mortgage products are the reigning champ and unlikely to be unseated anytime soon.

Different, but not equal

As the name suggests, a fixed-rate mortgage product means the payment you make will remain the same for the entire length of the mortgage. This is attractive to many consumers seeking stability in their financial planning.

Fixed rates are offered at a higher rate than variable- the price you pay for the supposed peace of mind a set payment provides.

In a variable-rate mortgage, your payments can increase or decrease at the whim of the financial industry – an initially intimidating prospect for the naturally risk adverse.

A variable rate changes with the prime lending rate as set by your lender. Quoted as Prime +/- a specific amount, like Prime -.25 per cent, Prime lending rates might fluctuate but the relationship to Prime stays constant over your term (you always have the -.25 per cent off Prime).

Context is everything

Without context, it’s easy to declare fixed-rate mortgage products as the safe bet for consumers seeking financial security.

This would be a mistake.

Historically, variable-rate mortgages are less expensive over time regardless of market fluctuations.

A long time ago (the 1980s) the Bank of Canada set its benchmark rate so high that the average mortgage rate was approximately 21 per cent.

Since that peak, in the ensuing 30 years, the average rate has consistently declined- increasing popularity in variable-rate mortgage products. Even with the Bank of Canada’s recent increase by .25 per cent, financial predictions indicate that any rate normalization will be slow, steady, and measured.

This gives variable-rate clients plenty of time to lock in their rate, should they so desire.

The takeaway

In our experience, the majority of consumers would benefit from resisting the siren song of fixed-rate mortgage products.

While income, lifestyle, and risk tolerance are all determining factors in the mortgage solutions we individually customize, we are confident in saying the majority of clients absolutely benefit from choosing a variable-rate mortgage.

Still on the fence?

Speaking with an unbiased mortgage professional about your specific situation will help you land on the right side.

If you’re curious about the current rates you can find them here.

Have more questions? Feel free to contact us!