The decision to choose a fixed or variable rate is not always an easy one. It should depend on your
tolerance for risk as well as your ability to withstand increases in mortgage payments. You can
sometimes expect a financial reward for going with the variable rate, although the precise magnitude
will ebb and flow depending on the economic environment.
Fixed rate mortgages often appeal to clients who want stability in their payments, manage a tight
monthly budget or are generally more conservative. For example, young couples with large mortgages
relative to their income might be better off opting for the peace of mind that a fixed rate brings.
A variable rate mortgage often allows the borrower to take advantage of lower rates -- the interest rate
is calculated on an ongoing basis at a lenders’ prime rate minus a set percentage. For example, if the
prime mortgage rate is 5.5 percent, the holder of a prime minus 0.5 percent mortgage would pay a 5.0
percent variable interest rate.
As a consumer, the best option is to have a candid discussion with your mortgage professional to ensure
you have a full understanding of the risks and rewards of each type of mortgage.