Is Variable Rate better than Fixed for a Mortgage in Canada?

In 2024, Canadians are reviewing their options and understanding the mortgage market better in terms of flexibility, variable rates, premiums, etc. They’re scouting the best available rates and terms that suit their needs when it comes to their dream home or investment projects.

While fixed mortgage rates offer stability and predictability, variable or ARMs can offer better flexibility and opportunities in monthly savings. Based on the market trends and the rates set in Canada, homeowners can potentially lower their monthly mortgage payments when there is a decrease in market interest rates.

To know if variable rates in Canada are better than fixed rate mortgages, we need to review the benefits, the downsides, and the integrated factors that can impact variable rates. You can consult with the brokers at sHelto, to learn more about what type of mortgages work best for you in Canada.


Understanding the benefits of variable rates in Canada

By understanding the opportunities and benefits made available to homeowners, they can make the right decision about whether variable or ARMs are better for them. You should always consult with a broker prior to making any home mortgage decisions, as they can provide better analyses and insights about the dynamic home ownership market in Canada.

Flexibility in planning

A variable rate mortgage allows for better flexibility in planning. You can opt for a 3 or 5 year variable rate and not be locked-into a fixed rate for the period. You may get a lower monthly mortgage payments benefit during periods of low interest rates, while those under fixed mortgage rates may have to continue paying the fixed amount.

Benefiting from rate trends

One of the major benefits of opting for variable mortgage rates Canada plans is the ability to gauge the market trends better. You can lower your monthly payments when there are significant rate changes announced by the Bank of Canada on their benchmark rates.

Costs can go down over time

Depending on the housing market and prime rates set, you may end up paying lesser over time. You can have greater savings when the market interest rates decrease, allowing for more mortgage interest savings.

Empowering home owners

Canadian home owners can feel more empowered when they’re able to make real-time decisions about their home mortgages. They can switch from variable to fixed during periods of high interest rates, and vice versa when the market rates lower. They’re not paying a fixed mortgage rate for 5+ years regardless of how the market is evolving.


Reviewing the downsides of variable rate mortgages in Canada

We should also focus on the potential downsides of variable rate mortgages in Canada. Based on the market trends and the prime rate, there could be potential increases in your interest payments.

Risk of high interest rate environment

When there is a general market trend towards higher interest rates, then you may have to pay a higher interest amount based on your variable rate. Depending on whether you’re opting for an ARM or a fixed year + variable rate agreement, you may be at risk during periods of high interest rates.

Lack of complete forecasting

When you’re in a variable rate mortgage plan, you’re not able to precisely forecast your monthly payments accurately. Variable rates make it harder to predict payments into the future, as there may be fluctuations introduce by changes in overnight rates,

Higher capital expenditure

You may end up paying more for a house than you would have when it comes to fixed mortgage rates. You could have paid a significant amount more in periods of high interest rates, if your strategy didn’t accurately match market trends.

These are some of the main factors which impact variable rates

It’s also vital to understand what factors actually impact the variable rates set in the market, so that you’re able to make your own assessments by working with brokers. You can check for the rate trends in the market and predict into the future to design the ideal ARM or variable mortgage period.

Macro-economic trends

Interest rates are generally set to decline in periods of low economic growth. That’s why lenders are able to offer a more favourable rate when there is a decline in overall movement. You can get a better rate when there is low economic activity or development in the housing market.

CIBC’s Prime Rate

The CIBC prime rate, which is around 7.2%, is based on the Bank of Canada’s interest rate policies. This helps set the rates for variable loans on mortgages, and provides set benchmarks to lenders across the country.

Lender’s risk cover

If there is a significant trend of defaulting or individuals with lower credit ratings, then the risk cover premium will rise. This will mean that your variable rate may also rise as a result of larger borrower trends in certain markets.


A fixed rate may be better for some borrowers in Canada

Certain mortgage lenders may also offer fixed rates over variable rate mortgages based on the macroeconomic conditions, borrower preferences, and structure of loan term. Calculations of the lender’s prime rate and variable mortgage rate are done, and fixed, variable, and hybrid solutions can be offered.

More stability

The mortgage payment is stable when it comes to fixed rate mortgages. A fixed rate mortgage offers greater stability in terms of a locked-in rate, terms, and non-fluctuating nature of monthly payments. You’re able to get stability in terms of your monthly payments overall.

Structured payments

The structured nature of fixed rate mortgages make them more favourable for some home buyers who have multiple monthly expenses. If you’re paying student loans, personal loans, car payments, and other obligations, then a fixed rate mortgage may offer structure in your overall outflows.

Fixed financial planning

You’re able to better plan your financial budget, when there is a fixed payment element included. You can prepare a detailed financial model for your family expenses, with the mortgage payments being fixed.

The right way to go about understanding what works for you is to consult with a broker. At sHelto, we cater to Canadian homeowners across the country, giving them the right strategy, plan, lender rate, terms, and service to help them get the right mortgage for their dream home.

It’s important to plan your financial future accurately with the help of qualified brokers who can assist you with your borrowing capacity, home market trends, and actual property growth prospects. You can talk to our experts to get started on financing your dream project.


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