Variable Rate vs Fixed Rate – What should I take?

The question mortgage consumers are asking is:

Should I go Variable Rate or Fixed rate? The answer – Depends!

Variable rate is based on the Bank Prime, which is what financial institutions charge to the consumers. Bank Prime is based on the Central Bank Rate (the amount of interest the Bank of Canada charges financial institutions for short term loans). As the Central Bank Rate increases or decreases, so does Bank Prime and in turn the variable rate.

The 5 year fixed rate is based on the bond market. As the bond market increases or decreases so does the 5 year fixed rate.

If Bank Prime increases, that doesn’t mean that the fixed rate will increase or vice versa. Since January 2000 the average weekly Prime rate has been 5.28%. Conversely the average weekly posted 5 year fixed rate has been 6.9% during the same time period.

A number of years ago, it was clear that going with a variable rate mortgage would save consumers money. But heavy discounts on fixed rate mortgages and the narrowing spread between short-term and long-term interest rates have made the choice today less obvious.

Instead of trying to guess where rates are headed, consumers would do better to think about their own situation. They should evaluate their personal balance sheets and risk tolerance. The decision of whether to go short (variable) or long (fixed) will depend on the consumers’ tolerance for risk as well as their ability to withstand increases in mortgage payments.

The first time homebuyer or those with minimal down payment represent the perfect consumer to go long-term fixed mortgage rate.  If the consumer is at or near their maximum GDS/TDS ratios, they cannot take the chance of increasing interest rates. The worrywart, who is constantly looking at interest rates and can’t sleep at night wondering if it is time to lock in, should also go long-term fixed mortgage rate. The seasoned veteran who has plenty of equity in their home or has little time left on their mortgage, i.e. 5 to 10 years remaining on their amortization, can afford to go variable rate and take the risk.

Something to keep in mind is that variable rate mortgages allow consumers to lock in to a fixed rate at any time without costs. While there’s no up-front cost to the change, not all lenders will lock in at the fully discounted five-year fixed rate mortgage. Consumers should be sure to ask their lender if they will get the same fully discounted fixed rate if they decide to lock in.

If you are at your maximum purchasing power or you’re a worrywart, lock-in, forget about it, and enjoy life!

To schedule a meeting email me at

Websites: Bank of Canada


About wojciechpianka

After a few years of studying English and History at the University of Toronto, I decided to transfer to Ryerson University and pursue a Bachelor of Commerce degree. While studying, I worked various jobs where I acquired many skills. Starting as a teller at Scotiabank, I moved on to being a manager of a restaurant, admin staff at a medical clinic, a sales agent for INGDirect and a manager at One King West Hotel. While all these jobs challenged me, I never felt my potential being utilized. Finally in 2008, I completed the Ontario Mortgage Agent Course and signed up with The Mortgage Alliance Company of Canada. This was a great decision, as it allowed me to use the skills I learned working to help people achieve their real estate and financial goals. My passion for real estate and numbers has lead me to becoming a mortgage agent. Growing up in New York City, I always had a fascination of historic buildings and skyscrapers. At 21, I bought my 1st property and have been investing in real estate ever since. I firmly believe thru steady, safe and conservative investing a one can obtain long term financial wealth. One day, I hope to develop the same buildings I help clients purchase.
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2 Responses to Variable Rate vs Fixed Rate – What should I take?

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