Mortgage Blog

Mortgage Myths - Fixed Rate vs Variable Rate

May 22, 2019 | Posted by: Holly Cochrane

Both fixed and variable interest rates have their own pros and cons – neither one is better than the other. There are a number of factors that you should consider when making a decision on the type of interest rate that best suits you.  Holly Cochrane from the Holly Cochrane Mortgage Team explains “Understanding your goals and priorities will assist you with knowing the best choice for your mortgage. Do you prefer the peace of mind that comes with stability or are you comfortable with some risk in order to possibly save money in the long run? This question, among others, is important to consider when making a decision about a fixed or variable interest rate.”

Fixed Rate

• Your payments will remain constant to the end of the term, making it easier for you to budget.
• You know the rate for the term of the mortgage, meaning no surprise changes when there is a change to the prime rate.
• You have peace of mind knowing exactly how much your payments are and how much of your mortgage balance will be paid off at the end of your selected term.
• There are penalties for breaking term before the renewal date. The penalties are calculated at 90 days interest on the balance owing or the interest rate differential, whichever is greater. Penalties calculated can be substantial.

Variable Rate

•  The rate changes with the lenders prime rate during the term.
• Historically, variable rates are lower that fixed longer-term rate at the time of purchase or renewal.
• A substantial increase in the prime could result in a payment increase and possibly a lump sum payment required to ensure the mortgage pays out in time.
• The penalty for breaking term before renewal is 90 days interest on balance owing.

If you are looking to buy a home or it is coming up to your mortgage renewal, contact the Holly Cochrane Mortgage Team on 780-485-7908 to discuss your options and let the team answer your questions regarding fixed and variable interest rates.

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