FIXED VS VARIABLE: The good the bad and the ugly
There is no ‘one size fits all’ answer to the fixed vs. variable rate debate, but understanding how rates work and evaluating your unique situation and financial goals will help guide your answer. 

Fixed -The good
You lock in a rate for years for a stable, consistent mortgage payment for years to come.
Fixed -The bad
If rates drop you’re locked in to a higher rate. In 2007 when we bought our first home we thought we scored locking in for seven years at 5%, less than two years later prime rates had dropped by over 2%.
Fixed -The Ugly
If you break the mortgage, there is often a bigger penalty called an Interest Rate Differential Penalty. A family member recently had to break their mortgage five months into a five year fixed term incurring a penalty of $22,800.  Had she been in a variable rate the penalty would have been around $1,400.00.
Variable – The Good
Typically a lower rate, historically and statistically shown to cost less than fixed. If you break the mortgage, the penalty is just 3 months interest and can be substantially lower than the Interest rate differential penalty on a fixed rate.
Variable – The Bad
Potential interest rate hikes will increase your interest payable. It can be harder to budget for the future as you can’t be sure how interest rates might move.
Variable – The Ugly
The ugliest it will get is a rate increase, not typically more than .25% that can happen at 8 pre-scheduled times throughout the year by the Bank of Canada increasing the prime rate. With their latest announcement on January 19th it’s unlikely we will see significant increases until 2023. If you are concerned that rates are going to rise you can always lock into a fixed rate. 

What could your next five years bring, is there a chance you’ll have to break your mortgage? If 2020 taught us anything it’s that nothing is certain in life. Consider the following:

Will you be selling your home to purchase another?
Will you need to take equity out of your home?
Will you need to pay off debt?
Family changes, Relationship/marriage break up
Health challenges & life circumstances
You win the lottery!

Nearly 70% of Canadians opt for the ‘security’ of a fixed rate mortgage and it is estimated that over 60% of borrowers end up breaking or restructuring their mortgage leading to massive penalties.

Choosing The Loan That’s Right For You

The reality is that the choice of loan should be determined by your situation and own financial goals and priorities. You need to take into account your cash flow and need for security and/or flexibility and any costs associated with changing your current loan structure.