FIXED OR VARIABLE INTEREST RATE?

Fixed rate or variable rate for your mortgage? Each option has its pros and cons. You are about to take out a first mortgage or renew it and, in either case, the question inevitably arises: which formula will be more advantageous, fixed rate or variable rate?

FIXED INTEREST RATE

A fixed-rate mortgage is one in which the interest rate is fixed until maturity, as are the payment amounts. This means that it provides you with stability and peace of mind for the entire term, and the payments will not change until the end of the term. Fixed-rate mortgages can be open – and therefore subject to repayment at any time without termination fees – or closed, which involves termination fees if repayment is made before maturity.

VARIABLE INTEREST RATE

If you choose a variable rate, your mortgage payments may go up or down. If market rates go down, the portion of your payment that goes toward paying off your principal increases. On the other hand, if market rates go up, the portion of your payment that goes toward paying off your interest increases. A variable rate mortgage can be open-ended or fixed-term.

ADVANTAGES… AND DISADVANTAGES

A variable rate mortgage offers you great flexibility and can become very advantageous in the event of a drop in interest rates. On the other hand, the volatility of rates remains unpredictable and the possibility of experiencing an increase in the current rate exists. As for the fixed rate mortgage, it protects you from volatility, but has no effect on your payments if interest rates drop.

Your preference in this regard will therefore depend on your level of risk acceptance and your ability to cope with an increase in your mortgage payments.

SOURCE: https://www.centris.ca/fr/blogue/finances/taux-d-interest-fixe-ou-variable