By: Robert Clancy General
- Fixed rates mortgages are locked so the rate will not change over the term. A Variable rate can move up and down depending on the Bank of Canada’s monetary policies.
- Typically, both fixed-rate and variable-rate mortgages are closed which means paying a penalty to get out of the mortgage. If looking for a completely open mortgage product, then a secured line of credit is the best option although this is only available on conventional mortgages i.e. at least 20% down payment or equity in the property.
- Fixed rates mortgages come with higher penalty costs than a variable-rate mortgages to break the mortgage term. Some mortgage lenders like banks have even higher penalty costs on fixed-rate mortgages.
- Variable-rate mortgages are just three month’s interest to break the mortgage term..
- A fixed-rate mortgage can be transferred (ported) on to a new property although this only makes sense if rates have gone up or the penalty is too high to break.
- A variable-rate can be ported too but a lot of the time it can make sense just to break the mortgage and start a new mortgage based on the smaller penalty costs.
- A variable rate mortgage can be switched into a fixed rate mortgage at any time with the same lender without a penalty.
- Historically variable-rate mortgages have outperformed fixed-rate mortgages over time, however, the majority of borrowers will choose their mortgage product depending on the economic cycle we are in and the future forecast for mortgage rates. When the economy is heating up and demand out ways supply mortgage rates tend to move up as The Bank of Canada looks to control the expansion. With the economy is in recession The Bank of Canada will cut rates to try and stimulate the economy. Currently, we are experiencing a slow-performing economy and heading into a recession if not there already, so the variable rate mortgage does makes sense in this economic cycle.