Fixed versus Variable

Tracy Head • September 9, 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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Home Inspection

By Tracy Head • March 28, 2025
In an ideal situation I have some time upfront to work with clients on their pre-approval. I like to go over what to expect in terms of both the process and what to expect in terms of closing costs when they have an accepted offer on a home. We usually talk about potential expenses like property transfer tax, an appraisal, a home inspection, home insurance, and legal fees. This time of year we also talk about upcoming property taxes for anything they are purchasing before July 1st. I think human nature is that we want to minimize our expenses and make sure we are getting the most bang for our buck. There are a few areas of cross-over where I anticipate the clients’ realtor will be speaking to them about items like the requirement to organize home insurance and the importance of a home inspection. In practice I think most realtors encourage their buyers to move forward with a home inspection because they want to ensure clients are not buying any surprises that will create headaches down the road. Sometimes clients are buying privately and are not represented. In those cases I always urge them to include a home inspection as one of their conditions. I have had clients question the need for a home inspection, particularly if they are buying a condo or a new build. Two recent examples have popped up that reinforce for me the importance of a home inspection: - We are working with a lovely first-time home buyer in the lower mainland. Her budget isn’t huge so she has been waiting and watching for the right property to come up, and for her offer to be the one chosen. The stars aligned for her last week. Her financing was approved and all of the financing conditions were signed off by the lender. We were doing a happy dance for her and had a rude awakening the day she did her home inspection. The home inspector found an ongoing leak in the kitchen that has created a soft wall which is indicative of a bigger problem. On a surface level the kitchen is beautiful and relatively recently updated. As a first-time home buyer with no family nearby our client was thrilled by the aesthetics of this condo, then devastated by the potentially expensive work needed to repair / rectify the damage. - The second situation really caught us by surprise. We have clients on Vancouver Island who have an accepted offer on a brand-new home that has never been lived in. They did choose to invest in a home inspection and we are so glad they did. It turns out that somehow some of the larger windows were installed incorrectly and this has created damage to the windows and a leak in one corner. Again, with a new build the temptation would often be to skip the home inspection. Yes, any issues with this home will be covered by warranty. Having the home inspection done and being aware of the issues upfront gives them a lot more power with respect to having these defects repaired quickly. Now that I’ve driven that point home, its important to know that not all home inspectors are created equal. Do your due diligence – look at reviews, look at the home inspector’s qualifications and length of time / experience doing home inspections. Going with the cheapest option is not always the best option.  Buying a home is the biggest investment you will likely make. Trying to save a few hundred dollars upfront may end up costing you thousands of dollars and sleepless nights down the road. Save yourself the pain and aggravation of hidden issues in your home.

Rate Wars

By Tracy Head • March 24, 2025
Annnnnnnd …. Its on!  Spring has arrived and with it comes a significant drop in mortgage interest rates. Over the last few months when I’ve chatted with clients who are renewing or planning to buy in the spring market I have said in almost every conversation that by mid-March rate wars tend to start. Regardless of what is happening in the interest rate environment as a whole it seems by the third week of March lenders start sharpening their pencils. Over the last two weeks we started to see lender bulletins trickle in advertising quick- close rate specials (ie: for mortgages finalizing within 60 days) and rate drops across the board. Today I have had updates from six different lenders and its only noon. Why is this important to you? Not all lenders have the same policies with respect to dropping their rates once your mortgage has been approved. When you go into a holding pattern after your mortgage has been approved but before it has finalized rates can change. If they go up, you are covered by the rate you have in place. If they go down, how does your lender deal with your file? Some lenders won’t drop your rate. Some lenders will drop it once. Some maybe twice. There are a few lenders that will drop your rate an unlimited number of times up to a few days before your mortgage finalizes. When I am choosing a lender for my clients this is absolutely one of the most important things I consider. All things being equal, if I can place a mortgage with a lender that offers unlimited rate float downs I will. I watch my calendar of upcoming closings and proactively reach out to those lenders to request better rates for my clients. It’s a win to be able to get the benefit of falling interest rates without having to change lenders. If you are buying a home, renewing your mortgage, or looking to refinance this is a key question you should ask your mortgage person. Find out whether they will adjust the rate on your mortgage and what the process is (do you have to request this?). At the same time, find out how many times they are able to reduce the rate for you. Regardless of the answer I suggest touching base with your mortgage person or lender periodically up to the time your finalize your mortgage to confirm you are receiving the lowest rate they have available for you.
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