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  • Writer's pictureMike Hidlebaugh

Fixed Rate Mortgage Vs Variable Rate Mortgage

Updated: Sep 16, 2021

One of the features you must decide on when selecting a mortgage product is whether you want to have a fixed interest rate or a variable interest rate. There are pros and cons to both options and you must decide which best suits your lifestyle and financial goals.

With a fixed mortgage rate your interest rate and therefore payment will stay constant throughout the entire term of your mortgage. The fixed rate is advantageous for people who have a strict budget that they must adhere as they know in advance what their mortgage payment is. It is also beneficial for people who are averse to taking risks. If there is a significant difference between the fixed and variable rates the sense of security might not be worth the savings you would see by going with a variable rate. If interest rates are low and not expected to decrease and possibly increase, it would be wise to pick a fixed rate.

With a variable rate your interest rate and therefore your payment fluctuates with the prime lending rate which is set by your lender. The variable rate will be Prime +/- a certain amount such as Prime-.75. The Prime Rate might fluctuate throughout your term, but the relationship to Prime remains constant throughout the term. This can lead to uncertainty and concern for some borrowers. If interest rates are forecasted to fall, it might be wise to choose a variable rate. Historically, borrowers have paid less interest with variable rate mortgages.

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