Fixed vs. Variable Rate

It depends on a lot of factors so there is no easy answer here. But generally variable rates are lower than fixed rates but you run the risk that they can increase over the term of your mortgage.

Most of the time over the long run if you have good cash flow, you’ll probably be better off with a variable rate. They are almost always lower and rates will have to increase more than just a little to have made it worth locking in with a fixed rate.

However, if you can’t afford your payment to increase and don’t want to worry, then you should select a fixed rate. You’ll typically pay a bit of a premium to have a rate locked in for a certain number of years. If rates do rise rapidly you’ll be better off with a fixed rate. But at the end of the day, you usually pay a premium for the security of knowing your rate will not increase.

Three things to consider when deciding on fixed or variable rate mortgage:

  1. What is your risk tolerance? Can you afford the payment to increase?
  2. Where are interest rates relative to historical average? Which direction are they likely to move?
  3. What is the spread? Variable and fixed rates move because of different factors the spread will vary

Generally, if you are comfortable with the risk and can afford a payment increase should variable rates rise over the course of your mortgage you’ll usually be better off with a variable rate. Conversely, if you’re not comfortable with the risk and couldn’t afford a rise in mortgage payments, take a fixed rate.