Kanetix Forum

What are the differences between a fixed rate and a variable rate mortgage?

Generally, adjustable rate mortgages have lower rates than the fixed rates. However, adjustable rate mortgages fluctuate with the Prime rate and are subject to go up and down at any time, without notice. This could be inconvenient if you prefer planning your expenses in advance.

Choosing a fixed rate mortgage may lower your payments in the long run if the prime rate is expected to rise. The advantage of a fixed rate is that it offers a stable, monthly bill that will never change during the mortgage term.

Some lenders offer the flexibility of taking a variable rate with the option to convert into a fixed rate at anytime without penalty. A good mortgage broker would have the foresight to plan accordingly to your needs as they change over time.

Conversely, switching from a fixed to variable mortgage is also a good strategy, and can help you save money long term. If you are not adverse to risk, you have the benefit of paying considerably less. However, there is always the possibility you might be paying more at times. Converting from fixed to variable is a good idea for the rate savvy homeowner who doesn¿t mind watching mortgage rates regularly and is given the option to lock in to a fixed rate mortgage without penalty. Historically the variable rate mortgage has always been a money saver. However, most first time home buyers chose to take the fixed rate mortgage until they are more comfortable with their spending and saving habits.

Paul Sidhu, Principal Mortgage Broker at KTX Financial Ltd.

Neither Kanetix® nor the KanetixForum.ca is a mortgage broker or agent. Although this information has been passed along to you from KTX Financial through the Forum, we are not responsible for the opinions expressed by them. Mortgages can be complicated. When reading these answers, keep in mind each person¿s situation is unique. Individual responses may vary depending on your lender, geographic location, and specific circumstances. If you have a similar situation, always speak with your mortgage provider, or a licensed mortgage representative, for terms and conditions that may apply to you.