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Fixed vs. Variable Rate Mortgage (VRM)


Fixed describes an interest rate which will not change over the term of the mortgage.  This will result in regular payments even if interest rates change.  This is a great option when interest rates are low and are expected to rise in the near future. It also gives a first-time homeowner time to adjust to any changes in their budget that making mortgage payments have caused. 

Variable means that the interest rate being charged is changing based on the interest rate set out by the Bank of Canada. This fluctuates based on market conditions. Your payments will, with a few exceptions, continue to stay the same. However, the amount you are paying will be distributed to the interest and principal in different amounts. If interest rates rise you will be paying off less of the original borrowed sum, as more of your payment goes to interest. The opposite being true should interest rates drop. If you have a fair bit of flexibility in your budget this may be a good option as variable rates over the life of your mortgage often result in lower interest charged.

Adjustable, as with the variable option above, interest rates will change with market conditions. However, any change in interest rate will result in an increase or decrease in payment. This option should be considered with great care, as an increase in rates could result in payments outside your budgetary limits.

Cheryl Wilkes Mortgages can help you to decide which option is best for you by talking to you about current market conditions and expectations on future rate changes, as well as the risk you are willing to assume within your personal budget.

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