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First-time Home Buyer

Variable or Fixed, Which Rate is Best For You?

couple lookating phone mortgage
couple lookating phone mortgage

Right now, you can save a lot more with a variable versus fixed rate.

Based on True North Mortgage’s current rates (as of March 14, 2021), the below savings might seem a little shocking. But does that mean a variable rate is the right choice for you? Your rate type can have a big impact on your mortgage affordability and monthly budget. A variable rate may provide more savings over a typical 5-year term, but your rate and payments can change (tied to Bank of Canada rate fluctuations). A fixed rate is just that — your monthly payments won’t change, but you’ll likely pay more for the budget consistency. At this point, variable rates are all but guaranteed to go up — how much and how fast has yet to be seen. Yet with the current spread between these two types, variable rates have a long way to climb before they stop making savings-sense.

A lower variable rate means you will:

  • Likely save thousands compared to current fixed rates
  • Pay more down on your principal
  • Save on interest costs
  • Need to budget for higher payments if the prime rate increases
  • Need advice on when to switch to a fixed rate 
  • Pay lower penalties should you decide to break your term

A higher fixed rate means you will:

  • Be protected against rate increases
  • Have consistent monthly payments during your term 
  • Likely have higher payments compared to a variable rate
  • Pay more for interest costs
  • Pay higher penalties should you decide to break your term
  • Want to look for your best fixed rate to save more

The choice can be personal, based on your financial situation and comfort level with changing rates and payments. Pre-pandemic, a fixed-rate mortgage was chosen by about 60 percent of clients, with around 30 percent going with a variable rate. Now? This trend has reversed, with over 55 percent in the past six months embracing the variable risk and savings-spread. Despite the current variable savings, however, many first-time home buyers may feel more secure with a fixed rate until they gain budget experience in dealing with likely (by far) their biggest monthly payment.

Just as important as the rate type you choose? The flexibility and fine print of the mortgage you get. You’ll want to make sure that your rate doesn’t come with hidden fees or sneaky restrictions that’ll cost you more when you least expect it. Higher pre-payment penalties or a bonafide sale clause can make a real dent in your financial plans if you don’t know they’re there.

Need help figuring it all out? Having a highly-trained mortgage broker in your corner can make the difference. You’ll have access to multiple lenders, thousands of products and your absolute best variable or fixed rate to save you thousands. You’ll also get essential info on first-time programs, rebates, and affordability strategies to make a clearer decision. As a first-timer, it’s important to start off with a great service relationship that you can come back to for a lifetime of mortgage help.

At True North Mortgage, better mortgages are all we do and providing you with unbeatable service is our top priority. With over 10,000 5-star reviews, we’re here to help you get a home — and a mortgage that works for you.

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