Fixed vs. Variable Interest Rates

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If you’re planning on buying a home in the near future, you will likely find that you’re only able to pay a small part of the purchase price up front; this is also known as the down payment. A lender can help you finance the rest of your home through a mortgage. If you need a mortgage to buy a home, you’ll want to choose the type of interest that works best for your financial situation.

In general, there are two main types of mortgage interest rates, fixed-rate or variable-rate. One is not necessarily better than the other, but there are clear differences that should be considered. In this article, we’ll discuss the difference between fixed-rate and variable-rate interest to inform you about your mortgage interest rate options.

Fixed interest rate mortgage

A fixed interest rate mortgage is an option where the rate of interest stays the same for the entire term of a loan; a term is the amount of time that the interest rate is good for. In 2020, about three-quarters of mortgages in Canada were fixed. To avoid payment hikes when interest rates increase, fixed-rate mortgages may be reassuring to borrowers who benefit from knowing that their payment will remain the same for the term they choose, which allows for more accurate monthly budgeting.

You may notice that a fixed-rate mortgage interest rate is typically higher than the variable-rate. If you opt for a fixed-rate mortgage when interest rates are low, your rate will be guaranteed to stay low even if interest rates increase over the term of your loan. A fixed-rate mortgage may be the best option for you if you want your interest rates to stay the same, or if you want to set a fixed budget for your interest payments. Many borrowers consider the peace of mind afforded to them with this option to be a significant benefit of fixed-rate mortgages.

Variable interest rate mortgage

Even with the certainty associated with fixed-rate mortgages, variable-rate mortgages made up approximately 40% of all new loans in the second quarter of 2021, according to a Canadian Mortgage and Housing Corporation report. Unlike a fixed-rate mortgage, a variable interest rate can fluctuate throughout the term of your mortgage. If market interest rates decrease or increase, so will a borrower’s interest rate, and corresponding mortgage payments will change accordingly. As Canada is currently seeing rates increase from record lows, variable-rate payments have begun to increase.

Borrowers of a variable-rate mortgage will generally access lower interest rates than fixed-rate mortgage holders because of the uncertainty of what the rate will be in the future. They will also face lower penalties for ending the mortgage prematurely compared to ending a fixed-rate mortgage. In fact, borrowers can lock their variable rate into a fixed rate without breaking the mortgage at any time. The same is not true for borrowers switching from a fixed-rate mortgage to a variable-rate mortgage, as this will break their mortgage agreement and result in penalty fees. For borrowers with a more flexible budget who are comfortable with the possibility of interest rates increasing, they might consider a variable-rate mortgage. This is especially true in an interest rate environment that is forecasted to decrease or stay relatively the same. However, if rates are increasing, a fixed-rate mortgage may be a better option.

CUA’s Fixed-Rate Mortgage Option

At CUA, we offer a fixed interest rate mortgage option for our members who want to feel secure with a set payment. Members also have flexibility to select their payment schedule, and can opt for weekly, bi-weekly, monthly or semi-monthly payments. There are also prepayment privileges; members are permitted to pay one extra regularly scheduled loan payment monthly without prepayment charges regardless of the contracted rate or the current rate. Additionally, members can increase their regularly scheduled payments and/or make a lump sum payment, without prepayment charges, up to an amount equal to 20% of the original of the original principal mortgage balance annually.

For any questions related to our mortgage products, CUA’s team of professionals can help. Contact us with your mortgage-related questions any time at or phone 902.492.6500 for more information.

Published June 10, 2022

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