Fixed vs Variable Mortgage: How to Choose

A fixed mortgage rate remains constant throughout the chosen term, typically between 1 and 10 years. This means your monthly payments stay the same regardless of market fluctuations. Advantages of fixed rates: • Complete payment predictability • Protection against rate increases • Easy budgeting • Peace of mind Disadvantages of fixed rates: • Generally higher than initial variable rate • Early repayment penalties often higher • No benefit if rates decrease

A variable rate fluctuates based on the central bank's policy rate. When this rate changes, your mortgage rate adjusts accordingly, affecting either your monthly payments or the principal/interest portion of each payment. Advantages of variable rates: • Generally lower initial rate • Possibility to benefit from rate decreases • Lower early repayment penalties (often 3 months of interest) • Historically more economical over the long term Disadvantages of variable rates: • Uncertainty about future payments • Risk of significant rate increases • Can affect your budget if rates rise rapidly

Several personal factors should influence your decision: 1. Your risk tolerance If financial uncertainty causes you stress, a fixed rate will provide the peace of mind you need. If you're comfortable with some level of risk and can absorb fluctuations, a variable rate might suit you. 2. Your financial situation Do you have room in your budget? If a $200 monthly increase in your mortgage payment would put you in difficulty, the fixed rate is more prudent. 3. Expected duration of ownership If you plan to sell or refinance within the next 2-3 years, a variable rate with its reduced penalties could be advantageous. 4. Current economic context Analyze interest rate trends. During historically low rates, locking in a fixed rate can be wise. During high rates with anticipated decreases, variable becomes attractive.

Historical studies show that, over 15 to 25 year periods, the variable rate has generally been more economical than the fixed rate in about 80% of cases. However, this statistic does not guarantee future results. The interest rate cycle: • Low rates encourage borrowing and economic growth • An overheating economy pushes central banks to raise rates • High rates slow down the economy • The cycle begins again Understanding this cycle helps you anticipate rate movements, although it's impossible to predict exactly when and by how much rates will change.

You don't have to choose exclusively one or the other. Here are some alternatives: Split mortgage Some lenders allow you to split your mortgage, for example 50% at a fixed rate and 50% at a variable rate. This approach offers a compromise between security and potential savings. Capped variable rate Some institutions offer variable rates with a maximum cap. You benefit from potential decreases while being protected against excessive increases. Conversion strategy Many lenders allow you to convert a variable rate to a fixed rate during your term. This gives you flexibility to react to market conditions.

Before finalizing your choice, ask these essential questions: • What are the early repayment penalties for each option? • Can I convert my variable rate to a fixed rate? Under what conditions? • What is the current spread between your fixed and variable rates? • How will my payments be adjusted if the variable rate changes? • Do you offer accelerated payment options? • What are the renewal fees? This information will allow you to compare offers from different lenders and make an informed decision.