Fixed versus Variable

Tracy Head • Sep 09, 2024

One of the questions I am most often asked is “should I take a fixed or a variable rate”?

My answer to this question is different for each client.


My answer to this question may change based on the interest rate environment.

The last few years have been sobering to say the least. We were riding the high of historically low fixed interest rates and beginning to see them as the norm. 


Where interest rates are sitting now (mid four to five per cent) is closer to the average interest rate Canadians have paid over the last twenty years.


This week I attended a learning event and the economist that presented to the group spoke the words we have all been waiting to hear. He did qualify his thoughts with the comment that no one has a crystal ball and we’ve all seen what can happen with Bank of Canada monetary policy.

What he did say is that he feels we will see prime rate drop 1.25 to 1.5 per cent over the next year.


What does that mean in dollars and cents?


As an example, if your mortgage is $500,000 and your variable rate mortgage is priced at prime less 1.05 per cent, if prime drops one per cent this means your payment will be $283.28 per month lower.

This math applies if your variable rate mortgage has a payment that changes every month. If your variable mortgage has a static payment (payment that does not change to follow changes in prime) your payment stays the same but more money goes towards the principal instead of interest.

So it seems like variable is the obvious choice if you are finalizing your mortgage right now. 


But it may not be. 


Circling back to where I said each client has a unique set of circumstances, variable may not be the best option. 


Fixed rates for insured mortgages are hovering around 4.59 per cent (some lenders lower, some higher). For clients that are pushing to qualify for the maximum purchase price they can the one per cent difference between fixed and variable rates absolutely affects their borrowing power.


Lets say we are working with a family earning $120,000 annually. When we calculate their maximum purchase price using the minimum down payment and assuming $3,000 a year for property taxes here is the difference:

  • Using a fixed rate of 4.59 per cent we are looking at a purchase price of $525,000
  • Using a variable rate of prime less .95 per cent (5.49 per cent) we are looking at $475,000


Another consideration before choosing fixed or variable is individual risk tolerance. Do you have room in your budget if rates trend up instead of down that you will not be stressing if prime does increase?

Exit strategy is yet another thing to consider. With variable mortgages the maximum penalty you will pay if you pay your mortgage in full early is three months’ interest whereas with a fixed rate mortgage you will pay the greater of three months’ interest or your lender’s interest rate differential calculation. There can be quite a spread between the two.


If you are planning to pay off your mortgage in the next few years variable may be the route to go strictly for that reason.


And if you opt to choose a variable rate mortgage then decide you are not comfortable with potential changes, or if a few years in the fixed rates are far more attractive you can convert from a variable to a fixed rate mortgage. Win-win.


Deciding whether to go fixed or variable is absolutely an individual decision for all of the reasons above.


When the economist was asked whether he would choose a fixed or a variable mortgage himself right now there was no hesitation whatsoever. 


“Variable all day long” was his answer.



It will be interesting to see where rates are a year from now.

Tracy Head

Mortgage Broker

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Navigating Mortgage Decisions: Finding the Right Amortization and Term for Your Situation

By Tracy Head • 07 Oct, 2024
When I am working with clients on their mortgage approvals there are several decisions they need to make. The questions differ a bit based on whether we are working on a purchase, a refinance, or a straight renewal. We talk about amortization, term, and the specific mortgage product. These questions differ a bit based on what we are doing and the clients’ specific situation. Amortization refers to the total length of time required to pay your mortgage in full. Term refers to the length of time you choose to lock into a specific rate. Some of the decisions can be scripted if you are purchasing with less than twenty per cent down and your mortgage requires default insurance. These rules have recently changed (again situation specific) but length of term is up to the individual client. Historically many people choose five year terms because lenders offer lower rates for this term. Over the last two years I’ve had far more people opt to pay a slightly higher interest rate and choose a three year term, gambling that rates will be lower then. Over the last year specifically as home prices have risen at the same time as the cost of living has escalated I’ve had different conversations with clients about the amortization they choose. With the recent announcement of changes coming to maximum amortizations for new builds and first time home buyers it will be interesting to see how these discussions change over the next few months. For clients who were working on refinances or purchases with over twenty per cent down we had the option of extending to a thirty year amortization. Some clients are resistant to stretching out the length of their mortgage and for solid reasons. Our parents’ generation was all about getting their mortgages paid off as soon as possible. This is obviously the choice that made the most sense and was more achievable for them and has been ingrained in many of us. Our current reality is that home prices and cost of living have skyrocketed while wages have not kept pace. I’ve heard the argument that our parents were not enjoying a life style that included $6 coffees every day. Fair enough. However, I have clients that live very frugally and are still struggling. Life happens. Divorce or separation happen. Devastating accidents or illness happen. Childcare bills escalate. Jobs are lost. Stuff happens. Particularly when I am working with clients that are consolidating or buying at a significantly higher price point we have a thorough discussion comparing the difference in monthly payments for (usually) a twenty-five amortization versus a thirty year amortization. Signing for a shorter amortization makes better sense for your long-term financial plan. However, if the higher payment causes you stress month after month and you end up in the same boat again a few years down the road the long term benefit is not there. Every lender offers several ways to make extra payments against the principal of your mortgage. Interest rates will likely be different every time you renew your mortgage. Your income and bills change over time. I will always be an advocate for paying your mortgage off sooner but many of my conversations with clients are pretty raw about the reality of making your payments every month. The positive news is that rates have been trending down over the last month which will help provide a bit of relief. The better news is that by making thoughtful decisions around your choices for amortization and term you may help reduce your overall stress level.

Mortgage Rule Changes

By Tracy Head • 21 Sep, 2024
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