Fixed Vs. Variable Mortgage Interest Rates Explained

Fixed Vs Variable Mortgage

Buying a home is a dream for many people. Statistics reveal that only 45 percent of people between the ages of 18 to 34 are home owners in Canada. Most people are emotionally attached to home buying decision in life. So, people often make the mistake of buying a home quickly without thinking the decision through. If you are a home buyer, you should not repeat the same mistake. You should, instead, look for various options before picking one.

When it comes to financing, you should also be careful and make a choice you wouldn’t regret later. One of the crucial decisions that you will need to take is to decide between a fixed vs. variable mortgage. We’ll help you with that by explaining fixed vs. variable rates, their pros and cons, how they have changed over the years and the lenders who can help you.

Fixed Vs. Variable Mortgage Rates Comparison

Before you learn about fixed vs. variable mortgage rates comparison, you should understand the basics. In simple terms, a fixed rate mortgage is the mortgage in which the payment you make and mortgage rate will remain the same for as long as the mortgage lasts.

In contrast, when you select a variable rate mortgage, it will be quoted as prime plus or minus a specified amount. In variable rate mortgage, the prime lending rate is likely to fluctuate with time, but the relationship to prime will stay the same for as long as variable rate mortgage lasts.

What is a Fixed Mortgage Rate?

Now that you know about the basics of the fixed or variable mortgage, it’s time to understand each of them separately.

Fixed rate mortgage is usually based on bond futures. As mentioned before, when you select this option, the payment won’t increase for the duration of the loan repayment.

Fixed Mortgage Rate: Pros and Cons


  • Any market fluctuation won’t have an impact on the interest a borrower has to pay.
  • This option is also secure as you need to set a specific amount of money aside every month.
  • This option is best for people who want to plan their finances in the long run and hope to keep the payments similar.


  • When you opt for a fixed rate loan, you need to pay a slightly higher fee or loan amount to compensate for the risk you have averted.
  • If the interest rate stays the same or falls in the future, a fixed rate loan would prove to be more expensive.
  • With a fixed rate loan, the process of paying off the principal might be quite long.

What is a Variable Mortgage Rate?

Variable mortgage, also known as an adjustable rate mortgage or arm mortgage is a loan, where the interest you need to pay for a loan varies a lot. Usually, the interest rate would be similar for some time and then it will adjust periodically.

Variable Mortgage Rate: Pros and Cons


  • Historically, the variable mortgage rates have proven to be less expensive than fixed rates.
  • The process of getting an arm mortgage approved may be slightly easier than getting approved for a fixed rate loan.
  • You can buy an expensive home as initial monthly payments are usually lower with an arm mortgage.


  • Variable mortgage rate changes according to market conditions, which means that you can be asked to pay a higher amount.
  • Variable mortgage rate changes can adversely affect your financial planning.
  • You may need to read about financial terms extensively to get a loan with variable rates. Terms like adjustment index, cap, ceiling, margin and adjustment frequency can come up in the letters you get from the lender.

What Drives Fixed and Variable Mortgage Rates?

As you might have guessed, drivers of fixed vs. variable mortgage are quite different. Variable mortgage rates are usually determined by the prime rates of commercial banks. These rates are influenced by the key interest rates of the Bank of Canada. So, when the key rate changes, the variable interest rate would also change.

The fixed mortgage rates are usually influenced by the yield on Canadian government bonds that have the corresponding maturity. The bond yields are influenced by factors like exchange rate risk, inflationary expectations and the return on other financial assets.

Sometimes, other factors like foreign economic conditions and the perception of investors regarding the financial and economic health of Canada also influences mortgage rates. In most cases, however, the changes are due to domestic economic activity and the decisions that are made by financial authorities in Canada.

Picking a Mortgage Provider: Which One Will Suit Your Needs?

Interest Rate
Monthly Payment
Rate Hold
Contact brokerage for information
Contact brokerage for information
30 Days
20% / 20%
30 Days
20% / 20%
120 Days
Contact brokerage for information

*For monthly payments calculation purposes, the following parameters were used: $100,000 mortgage size, 2 year fixed rate and 25 years term.

Capital Direct

When seeking a lender who can offer the best mortgage rates, you can trust this one. The lender has been there for a long time and has offered millions in funds to its customers. The lender makes the time to listen to the expectations of customers before helping them decide on the best mortgage rate. It is also wise to trust this lender because it offers a low-stress process, has clear plans & expectations and provides approvals quickly.

The response time of the lender is also quite good, and the lender will always give you the best possible mortgage rates. You remain in control of which option to choose from variable vs. fixed interest rate, and you won’t be pushed in any direction.

Sigma Mortgage

This website is perfect for a first-time home buyer. The people representing this lender are patient and upfront with information. They can tell you about the basics, like variable vs. fixed interest rate. The lender will also guide you through the application process and explain you how to increase the chances of approval.

Many customers agree that this lender can help when the time is short, and you need a loan instantly. The lender also makes the process smooth without pressuring you to make a decision. Sigma Mortgage claims that it has the capability to provide the fastest and smoothest mortgages.

True North Mortgage

If you want to trust a lender who not only provides information on variable vs. fixed interest rate but also offers low rates, then this is the one. The company has helped people to get more than $9 billion in mortgages. It also has a team of skilled mortgage specialists who will find a perfect option for you. The lender is so sure about providing low rates that it offers $500 or lower interest rates to anyone who finds a better rate on the market.

Dominion Lending

You can trust this website if you want to get information on the best variable mortgage rates. More than 30 lenders are available here, and you can find over 350 offices nationwide. The website also gives you an access to more than 2,600 mortgage brokers. It also has a good track record as it funds more than 60,000 mortgages and $21 billion annually.

In addition to providing loans for a new home, the website also helps you to refinance your mortgage to free up equity and renew an existing mortgage. You can also use the money for any other purpose like leasing business related equipment and purchasing vacation homes.

Alpine Credits

People who are seeking an alternative to the banks and want the best variable mortgage rates or fixed mortgage rates can trust this website. The company has been helping people get loans since 1969 and has presence in Alberta, British Columbia, and Ontario. This website is perfect for people who didn’t get a loan from a bank due to reasons like bad credit, inconsistent income or even their age.

The website helps people to get loan approval in 24 hours or less in most cases. The lender has a good reputation and brand image too, as 90 percent of its customers recommend it to a friend. All the customers are treated with discretion, respect, and diligence.

Historical Mortgage Rates in Canada

No matter whether you are looking for best variable mortgage rates or the lowest fixed mortgage rates, you should learn about the historical mortgage rates in Canada. It will help you to get an idea about which loan option is more expensive for Canadians and has been so in the last few years.

According to statistics, finding the best variable mortgage rates is the right option for most Canadians because variable mortgage rates have been lower than the fixed mortgage rates from April 2017 till January 2019.

In April 2017, variable rates were higher than 1.5 percent, but lower than 2 percent. In contrast, fixed rates were higher than 2 percent, but lower than 2.5 percent. In January 2019, variable rates were more than 2.5 percent, but less than 3 percent. Fixed rates were more than 3 percent, but lower than 3.5 percent. Please see the screenshot below.

According to experts, the Bank of Canada won’t increase the interest rates three to four times in 2019 (as was predicted in 2018). The reason behind it is that the global economy is slowing. This is good news for both fixed and variable rate borrowers as you won’t have to pay high amount every month.

Example of How Fixed Vs. Variable Mortgage Rates Work

When you decide to go for one of the best secured home improvement loans, you obviously know that the loans need to be repaid too. So, you would be smart to use the loan amount wisely. It is better to do the planning before actually getting the cash. Why? It’s because this will help you to borrow only an amount that you actually need and you won’t borrow more money than you need.

We recommend that if you are taking the secured home improvement loans for the first time and want to play it safe, you should do only the essentials first. For instance, getting a leaky water pipe fixed is more important than adding a fresh coat of paint on a wall. Only when you are done with the essentials, you should opt for more cosmetic improvements.

The gap between fixed and variable rates keep on changing with time depending on the global financial scenario and the decisions made by the Bank of Canada.

In May 2012, the gap between fixed rates and variable rates was quite low. Fixed rates were a little over 3 percent while variable rates were 2.75 percent. In May 2015, things changed again, and both fixed and variable rates came down. The fixed rate was around 2.5 percent while the variable was a little less than 2 percent. In October 2018, the fixed rate was 3.19 percent, and the variable was 2.9 percent.

It is evident that the domestic and global economic conditions influence both fixed as well as variable loans. The impact is higher on variable rates and low on fixed rates. But still, variable rates usually remain lower than fixed rates.

Fixed Vs. Variable Mortgage Rate: How to Choose?

Choosing between variable interest rate or fixed interest rate loan can be quite complicated. If you are a loan seeker who wants to make the best decision, you should consider a few factors. They are listed here.

  • How Long Do You Plan to Live in the New Home?

If you like to keep changing homes and you are planning to sell off the new home you are seeking soon, you should consider a loan with the variable interest rate. As the payments are lower in the initial months, you can stay away from making hefty payments for the time you are living in the home.

In contrast, if you are planning to live in the new home for more than 7 years, you should seek a mortgage with a fixed interest rate. It will ensure that you pay a specific amount over a long period and don’t need to change your standard of living.

  • How Many Fluctuations Can You Tolerate?

The decision of choosing between a loan that has a variable interest rate or fixed interest rate also depends on how much fluctuations you can tolerate. Some people have a fixed salary or income level. Those people will be better off if they choose a fixed rate loan. The interest rate of these types of loans usually remains the same over time.

In contrast, people who have multiple sources of income or can arrange money suddenly can go for a loan with a variable rate. Though the probability is low, a scenario may happen in which the loan interest might shoot suddenly, and you would have to pay a lot of money as interest suddenly if you opt for variable rate loan.

  • Do You Want to Keep the Overall Cost Low?

If one looks at the history of loans in Canada, it is clear that fixed rate loan options cost more than variable rates. So, if keeping the overall cost of the loan low is vital for you, you need a loan with a variable rate only. The probability is high that the overall cost of such a loan would be lower than fixed rate loan, but again, there are no guarantees.

  • How Much Risk Can You Tolerate?

The risk factor is quite high with a loan that has a variable rate as compared to a fixed rate loan. The percentage of interest you need to pay can be quite low one day and very low the next day. So, you should have a look at the maximum possible rates for both the types of loans before making a decision.

  • How Much Safety Do You Need?

Some people can’t sleep peacefully at night when they know that mortgage rates may change at any time and they might have to pay more money suddenly. If you are one of these people, then fixed rate mortgages are a good choice for you.

In contrast, some people are fearless when it comes to money and don’t worry about the future. If you are one of them, then variable rate mortgage options are right for you. Always choose a loan option that brings you peace of mind. After all, there is no point in taking a home loan if it prevents you from enjoying your life in the new home.

  • What is the Economic Situation Like?

The domestic and global economic situation plays a key role in deciding mortgage rates in Canada. So, when you seek the better option from fixed vs. variable mortgage, you should keep up with the economic realities of the world. This will help you in predicting how much your loan interest would change with time and prepare you for unexpected changes.

The Solution

In case all the terms related to fixed vs. variable mortgage or mortgage rates are confusing you, you can take the assistance of a loan expert. Though most lenders would have a team of loan experts to help you, you can also hire an unbiased loan expert to lend you a hand.

If you want to avoid the hassle of visiting multiple lending websites, you can visit It is a free website that takes only minimal information from you and then suggests lenders who can help you.

Final Words

The mortgage rates are a key consideration when choosing a loan. If you want to decide which one to pick from fixed vs. variable mortgage, you should analyze several factors. It would also be smart to pick a lender who offers both fixed and variable rate mortgage to help you. If you choose a lender who only provides a fixed rate, the lender might bend you towards that option. Similarly, if you choose a lender who only provides variable rates, the lender might try to pull you in that direction.

When selecting the ideal loan option, make sure that you discuss it with your family members (who probably will help you to pay off the loan) before finalizing anything. Always remember, collective decisions usually have the edge over decisions taken by an individual.

By Loans Geeks Editor

Loans Geeks is an independent financial-service network dedicated to helping loan seekers secure loans at the most competitive rates.

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