Fixed vs. Variable Rate Mortgages

Often the most difficult choice for our clients.
Here's some performance history and thoughts...

Why it is a personal choice anothe perspective - Is Variable Right for you? - What should I do now?

What’s the chart telling us?
The red line shows what the five year fixed rate was at each particular point in time. The blue line shows the prime lending rate (variable) throughout the period. The white line shows the average of the Prime lending rate for a 5 year period, following data point on the chart.

For example, a 5 year term that started in January of 2000 will have had a fixed rate of approximately 8.55%, while Prime averaged 5.18% over the same period.

Some thoughts
A fixed rate gives the borrower peace of mind, knowing their payments are fixed for the duration of the mortgage term.

Opting for a variable rate historically saves interest costs. However, as the market changes, your rate may increase or decrease, but over the long term people tend to come out ahead. The variable rate is usually discounted from Prime.

It’s important to know whether or not the lender will automatically adjust your payments to reflect increases in the Prime lending rate. Some financial institutions fix your payment on your closing date and do not vary the payment when prime changes. This could lead to negative amortization, greatly increasing your interest costs.

Your specific circumstances need to be considered when selecting the right product. We can explain the benefits, as they relate to you.

It’s important to note that past performance (of prime) is not an indicator of future performance.