Which is Better: A Fixed Rate or a Variable Rate Mortgage?

Choosing between a fixed rate and variable rate mortgage largely depends on your needs and plans for the future. Generally they can be rated in the following ways:

  • A fixed rate is a vanilla loan and a good fit for those who want a simple, consistent mortgage payment plan throughout the life of the loan.  

  • Variable rate mortgages are usually preferred by borrowers who want to take on more risk for the chance to make savings is the long term.

  • Home habitation: How long do you intend to live in the property? Fixed rate mortgage borrowers are more likely to spend their life time on the property.  Variable rate borrowers usually intend to move or sell the property before the rates move up.

  • Where do current rates stand?

    • During periods of high interest rates, the variable rate mortgage is better than the fixed rate mortgage. On the other hand, a fixed rate mortgage will have no change in rates, so it'll stay high even as interest rates decline.

    • Inversely, during periods of low market interest rates, the fixed rate mortgage is superior since it'll remain stable. Variable rate mortgages, however, will rise with the market rate.