Fixed and Variable-Rate Mortgages

May 12, 2022


The primary choice that mortgage consumers face is to choose a fixed-rate or variable-rate mortgage.

As of Mar. 28th in 2018,’s survey of lenders found 4.30% for a 30-year fixed mortgage, 3.72 percent for a 15-year fixed, and 4.05% for the initial five years of a 5/1 adjustable rate loan (ARM ). These are averages across the country; mortgage rates differ based on region and heavily rely upon your credit rating.

The first step to determining if the fixed-rate mortgage or ARM would be the better option in today’s marketplace is to speak with a variety of lenders to determine what rate you are eligible for and which loan conditions are suitable for you, based on your credit score and income as well as debts, down payments and the monthly installment you can pay for.

When you have a clear idea of what rates and terms lenders are willing to extend for you, how can you choose between a fixed-rate mortgage or an ARM? Think about these things.


Is a mortgage fixed rate?

Fixed-rate mortgages are the best option because your interest rate is the same throughout your loan. It doesn’t matter if the interest rates increase or decrease. The interest rate of your mortgage will never change, and you’ll be paying the same amount each month. Fixed-rate mortgages generally offer higher rates of interest when compared to variable-rate mortgages since they ensure a constant speed.

While most people prefer a five-year term, you can obtain a fixed-rate mortgage with an amount ranging from 6 months up to 10 years with specific lenders. The shorter the duration is, the lower the interest rate you’ll generally receive. You’re buying certainty by choosing a longer-term contract; however, you’ll need to give up low-interest rates to achieve this.

What’s a variable rate mortgage?

Variable-rate mortgages can be attractive because interest rates are generally lower than fixed-rate mortgages. If interest rates rise during the term, your mortgage’s interest rate will also fall, and the amount you pay will be reduced.


A variable-rate mortgage typically provides the interest rate linked to the lender’s prime rate, which generally is tied with the prime rate of the Bank of Canada. You’ve signed an interest-only mortgage at the prime rate of -0.50 percent. Your lender has an excellent rate of 2.50 percent, meaning you’ll have to pay 2% interest. If your prime rate fell to 2.25 percent, the rates would fall to 1.75 percent. But, if the prime rate increased to 2.75 percent and your interest rate was 2.75%, it would rise by 2.25 %.

However, regardless of whether your interest rate increases, you’ll make the same amount each time you pay a mortgage. The difference lies in the amount paid to the principal and the interest. When interest rates go up, more of every payment is used to pay interest. However, as rates decrease, more of every price goes towards your principal. This helps to get your mortgage paid off faster.

Some lenders also permit you to convert a variable-rate mortgage into a fixed rate at any point.

The pros and cons associated with a fixed-rate mortgage

Although fixed-rate mortgages tend to be more well-known than variable-rate mortgages, they must weigh both the advantages and disadvantages before choosing.


  • Stability. It’s predictability. Your rate of interest will remain the same throughout the term.
  • You’ll know the portion of each month’s payment used to pay principal and interest, and you’ll be able to predict precisely the time it will take to pay off your mortgage.


  • Costs could be higher in the future. If interest rates fall, a fixed-rate mortgage may end at a higher price than a variable-rate mortgage.
  • Break penalties. Specific lenders charge steep charges if you have to terminate your fixed-rate mortgage, for example, if you decide to let the property.

Advantages and disadvantages of variable rate mortgage

Many people are attracted to variable-rate mortgages because the interest rates are lower than fixed-rate loans. But, rates are subject to change at any moment. Therefore, you should consider all the benefits and drawbacks before selecting the right mortgage.



  • It could mean lower costs throughout. Suppose interest rates stay the same or decrease throughout your loan term. In that case, you’ll pay lower interest on a variable-rate mortgage than on a Fixed-rate loan.
  • Minimum break penalties. Most lenders will charge you three months’ interest if you have to terminate your mortgage with a variable rate contract.
  • Ability to change towards a fixed-rate loan. Many lenders allow homeowners with a variable rate mortgage to switch to an interest-only mortgage.


  • Unstable HTML0. If rates increase and you pay more than you would get with a fixed-rate mortgage.
  • The conversion could result in a higher cost. If you switch to a fixed-rate mortgage that is a fixed rate, you will pay the current rates of interest -which could be higher than when you signed your mortgage.

How do you choose between fixed mortgages and? the variable type of mortgage

The debate over fixed and. Variable mortgages might seem straightforward, but variables can influence your choice. Historically, fixed-rate mortgages have been the most popular. However, variable-rate mortgages have helped homeowners save cash in most cases. With such low-interest rates that have been available in recent times, many people are opting for fixed rates.

Below are a few ideas to consider before making a choice:

  • Rates of interest. If you believe that the interest rates will increase and you want to lock them in, then a fixed rate is an excellent option to secure the rates. If you think rates will decrease, a variable-rate mortgage can make a huge difference.
  • Your tolerance to risk. Suppose you’re typically conservative and do not like taking chances. A fixed-rate mortgage may be the best option because the interest rate will remain identical for the entire term. You’ll be aware of the time it will be required to repay the mortgage.
  • Spread. The spread is the difference between the lowest rates for fixed and variable rate mortgages. If the distance is small and a fixed rate is more likely, it might be an option worth looking into. If the space is ample, most people choose an adjustable rate.
  • You can sell your home in the course of. If you need to terminate your mortgage, you’ll have to pay penalties. Fixed-rate mortgages usually calculate the amount of the liability based on how much interest you’ll be paying over the remaining time of the loan, which could be staggering. When you take out a variable rate mortgage generally, you’ll only need the obligation to settle for three months of interest to the end of the contract.

Many people only look at numbers when discussing fixed or. Adjustable mortgages it’s not that easy. Rates are subject to change at any moment, and it’s an issue of a coin toss in deciding which will cost you less. It’s probably best to start by looking at your risk-taking capacity and considering how you’ll react to changes in interest rates.


Suppose you’re looking to have security that comes from knowing that your mortgage rates will remain the same throughout your entire period. In that case, you should consider a fixed-rate mortgage. Suppose you’re willing that rates remain at the same level or increase or decrease. In that case, a variable-rate mortgage might be more attractive.