Fixed vs. Variable: Which Rate is Right For Me?

  • Fixed vs. Variable rate can be a tough decision but a decision you will need to make when getting a mortgage. Most people I work with will focus on a fixed-rate mortgage because of the uncertainty of variable rates and when they will increase. It is worth understanding the differences as well as the risk involved. When you first start thinking about a mortgage, there are many things to consider: how much monthly payment you can afford 
  • how long do you think you will be in this house 
  • how much money can you put down vs. how much you want to put down 
  • what interest rate type do you feel comfortable with 
  • what is the penalty for breaking the mortgage 

  

Let’s take a quick look at the two interest rate types available on most mortgages. 

  

Fixed Rates are determined based on the 5-year bond rates, but it will not change for the 5-year term once you lock into that rate. Lenders will change their fixed rates frequently. If you want to get pre-approved, you can lock in the current fixed rate for 120 days. Once you purchase and get approved, you will get either the rate you locked in or the current rate – whichever is lower. 

  

Variable Rates are determined based on the Bank of Canada overnight rate. Currently, the BoC rate is 1.50% (Jun 2022). The Bank reviews this rate 8 times a year and decides if it will raise, lower or keep the rate the same. If they change it, they usually do it in increments of 0.25%. Recently, they increased it by 0.50% due to inflation, which was very low during the pandemic @ 0.25% for the past two years. 

  

Both fixed and variable rates are discounted based on the lender’s posted rates. Currently, the variable rate is 3.70%, discounted by as much as 1.00%, so that the actual interest rate could be as low as 2.70% (OAC). Once you lock in a variable rate, you will get that discount for the 5-year term. The 3.70% will increase if the Bank of Canada raises its overnight rate. For example, current rate is 3.70% – 1.00% (discount) = actual rate 2.70%. If the BoC raises the overnight rate by 0.25% then your new rate will be 3.95% – 1.00% or 2.95%. A 0.25% increase represents about $12 per $100k of the mortgage. If you have a $300k mortgage, your monthly payment will be about $36 more. Unless there are unusual economic circumstances, the rate will not change very often. Since 2010 they have changed it about 13 times; that’s an average of about once yearly. This rate greatly impacts the economy, so they are conscientious when changing it. 

  

Now, let’s discuss the penalty if you break the mortgage. These two types of rates come with very different penalty calculations. The Variable Rate penalty is usually much lower. Variable’s penalty is equal to 3 months’ interest, whereas fixed is based on the Interest Rate Differential (IRD). Each lender has a different way of calculating the IRD, and they must have that calculation posted on their website for you to determine what your penalty would be. If you think that there is a chance you will be breaking your mortgage within the term, it’s very important to consider the penalty cost. There are many reasons people will need to break their mortgage, and the odds are high that you may need to break yours (about 70% of buyers break their mortgage during a 5-year term). Anything like changing jobs to a new location, marriage breakdown, etc., may cause you to break your mortgage. 

  

So how do you decide which rate is best for you? It’s really a personal decision. I will provide you with as much detail as possible here, but you will need to base it on your situation. 


If choosing a variable keeps you up at night because you are worried about the interest rate going up, fixed is a better option for your peace of mind. However, I would suggest you base your decision on the actual numbers. Each person has their own set of questions, and each person’s scenario is different. The numbers show that variable rate is better for paying less interest than fixed. A variable rate can be converted to a fixed rate at any time during the term if you are concerned about increasing rates. 

  

As mentioned, the two rates are based on different factors (5-year bond rate for fixed and Bank of Canada overnight rate for variable). Usually, the 5-year fixed rate is higher than the variable rate. As I write this, the fixed rate is about 3.99-4.49%, and the variable rate is about 2.60-2.80%. That is a difference of 1.39% +. On a $400,000 mortgage, that would be an interest savings of almost $26,000 over a 5-year term! 


In other words, you have a cushion of 1.39% for any increases from the overnight rate. If we look at the average of 1 raise per year and raise it 0.25% each time, we would not reach the fixed rate in the 5-year term. 

  

One strategy you can use with some banks, which I highly recommend, is to fix your payment to the amount of the fixed interest rate but choose a variable rate. The difference between the two payments will go towards the principal, thereby paying your mortgage faster. If I look at monthly payments on our $400K mortgage, the difference would be as follows (numbers based on interest rates at the time this blog was written): 

  

Fixed-Rate Monthly Payment $2,101.91 

Variable Rate Monthly Payment $1,811.85  Difference (which goes to the principal) $290.06 

  

Then if the BoC rate increases, it would increase the Variable Monthly payment but could keep your fixed monthly payment the same. It would just reduce the amount of extra payment you are making to your principal, but you would not feel the increase in your monthly payment. Using this method, you could knock off a couple of years or more on your mortgage, pay it off sooner, and save even more interest. 

  

Yes, there are more advantages to having a variable rate, and I favour using the variable rate strategy because it saves you on interest over the term of your mortgage. I also understand that many people want the comfort of knowing that their interest rate will not change and therefore don’t need to worry about what the BoC does to the overnight rate. At least until their term comes up and they need to review. But renewing is another conversation with a new set of questions and things to consider. 

  

Even though I personally like the variable option, you will always have the final choice. I advise choosing the one that will not stress you and allow you to sleep at night. If you would like an analysis of your specific situation, reach out to me at (519) 744-0982, and I would be happy to discuss and answer any questions. 

13 Reasons Why You Should Use a Mortgage Professional

August 30, 2023
Before we get into why you may choose to work with a mortgage professional, let’s quickly cover what a Mortgage Professional does. A Mortgage Professional is either a mortgage broker or a mortgage agent (who works for a broker). These licensed experts are there to guide you through the process of applying for a mortgage. It is most likely the biggest loan you will ever get, so there are a lot of things to consider, like… What would be the penalty if I have to break the mortgage? What’s better for me, fixed-rate or variable rate? What are my options to pay down my mortgage faster? How can I save $$$ in unnecessary interest? How can I secure the best rate? One of the main things I like to do is educate my clients on what the ins and outs are of a mortgage. Answering these questions for you is a great start, but there is still more to think about. Getting to know you and your goals helps me to identify how I can help you best. I ask for certain documents and ask questions to understand you, my client, better. This also helps protect both you and the industry from fraud. As a licensed mortgage professional with the Financial Services Regulatory Authority, means that it is my duty to look out for your best interest and ensure you can afford the mortgage you are applying for. It’s also my priority to keep your information is safe and protected, and only shared with the lender(s) we choose to send it to. Each year mortgage professionals are required to go through a relicensing process to ensure we are on top of all the new compliance rules. And here is the best part, in most cases, I do this all for FREE to you. The lenders will pay me a finder’s fee. Now that you know what we do, here’s the list of 13 reasons why you should use a mortgage professional when you are buying your new home:  Access to interest rates saving you thousands of $$$$. The banks don’t want you to know this! Since I send lenders millions of dollars of new business each month, they always offer us the deepest discounts which I pass on to you IMMEDIATELY – whether you are purchasing, refinancing, or renewing. I shop the market saving you valuable time. Calling me is like calling over 50 different lenders including Banks, Credit Unions, and Trust Companies – I have access to many of them and that will save you time. I don’t work for any one bank, I work for you! Isn’t it time the Banks compete for your mortgage business? I’ll provide you with some options so you can compare the two – what your bank is offering you and what I am able to offer you, then ultimately you decide which you feel most comfortable with. It never hurts to get a second opinion on the biggest financial obligation you will probably ever have. The application process is simple and quick. I’ll take some information and then send it electronically to the lenders that I feel are the best fit for your situation; 24 hr turnaround is usual! Click here for my Mortgage Application. Step By Step. I’ll walk you through the process of getting your mortgage, step by step. If you are a first-time homebuyer it can be an especially daunting process. I’m available on your terms. Days, evenings, and weekends. If you need me, I’m just a phone call or email away. One credit bureau, multiple lenders. Many people inadvertently disqualify themselves from getting the best rate when they are shopping for a mortgage. When multiple banks pull a credit bureau, your credit rating drops every time, sometimes eliminating the chance for the best mortgage or a mortgage at all. I take only one credit bureau but can forward your file to many lenders, increasing your chances at qualifying for a mortgage! Large range of products. Such as self-employed, credit challenged, no down payment, cottage properties, line of credit, 2nd mortgages, and more. I appreciate your business. I want to do an exceptional job for you because I want all your family and friends’ business in the future! Licensed Expert. Deal with a mortgage expert specializing in mortgages from all lenders, not just one. Rate Protection. If the rates drop before you close you automatically get the lower rate and if rates go up you have the lower rate locked in. Follow Up. including Annual Mortgage Check-Ups, Variable Rate Updates and the planning of your Mortgage Burning Party! I’m sure if you’ve made it this far that you’re convinced about working with a Mortgage Professional. If you would like a free consultation, feel free to email me at audiewynen@gmail.com or call me at 519-774-0982. It would be my pleasure to work with you and get the money you need.

Fraud Prevention Month: 6 Tips to Protect You From Fraud

August 30, 2023
March is Fraud Prevention Month! Fraud is a multi-billion dollar per year problem, meaning millions of people get caught by fraud online every year. So, this month, I want to bring your attention to this problem in the hopes of making you aware of the different types of fraud we are exposed to daily. The fraudsters are getting more and more sophisticated. It is up to YOU to be diligent when dealing online. Keep reading for my tips to prevent fraud from creeping into your life! Tip #1 : The top of this list, and arguably the most important of all password advice – you must never share your password. This includes through email, text, and even over the phone. These are all accounts that can be hacked, so it’s important to keep passwords out of those mediums for your safety. Tip #2 : Next up, you need to use a strong password. How do you know if your password is strong? Some websites actually will not allow you to use a weak password, and most sites require you to come up with stronger passwords. Strong passwords are at least 8-10 characters long (but the longer, the better) and include 1 or more of the following: capital letter(s) Lowercase letter(s) number(s) special characters (like @, #, $, %, &, etc.) Tip #3 : If it’s offered, always use Two-Factor Authorization (2FA). 2FA is an excellent security feature that will text you an authorization code to proceed with making changes to your account. If you get one of these requests and you didn’t initiate it you should change your password immediately. It probably means your account has been hacked! This happened to my Amazon account so it was a good warning that it was hacked. I promptly changed my password and created a much harder password. I haven’t had a problem since that scare. Tip #4 : Another good practice is to avoid re-using passwords as much as possible. If a hacker was to figure out this password has been re-used, many of your accounts would be vulnerable instead of just one. This is especially important for your email password since this password is usually the way to reset your password on any other account. Tip #5 : The next thing you should look out for is the address links of online websites and emails. For this, let’s look at a couple examples: In this example, we see that someone claiming to be a government official from the CRA has sent this person an E-Transfer. There are many things in this email that should sound alarm bells in your head. Let’s cover the big ones: When the CRA sends you something they will email you and direct you to your CRA account, or more likely they will mail you a notice. They would never send details like this and require your action via email. The sender’s email address is a Hotmail account – this is a HUGE red flag. The link in “click here” is not a government URL. There is a simple way to determine if it is a legitimate website or email. That is by looking at the website address – secure websites will start with “https://”  You should never click on a link unless you know who the email is from and if you know that the link is secure, especially if it is in your SPAM folder. When an email is in your SPAM folder, the links will be disabled. SPAM folders are usually pretty accurate, but once in a while you will find an email in there that should not be SPAM. You may also occasionally find an email in your inbox that should be SPAM. I would recommend checking your SPAM folder regularly to ensure you aren’t missing anything important, and just deleting the ones that are SPAM. This next example is an email that I recently received in my SPAM folder. Always make sure to verify the email address in the sender’s field to make sure it is a legitimate email from that company. They will never send an email from an Outlook, Gmail, Yahoo or some other personal account. Confirm that it is a legitimate account, and if you are still not sure go to the company’s website and verify it. Scammers are getting more and more sophisticated so it’s very beneficial to become familiar with how you can verify email addresses and websites. Always remember that you are anonymous online and can pretend to be anyone you want with enough effort and you will fool people. That is what they are counting on. Tip #6 : Last, but certainly not least, monitor your credit score on a regular basis. This is a BIG one. To protect yourself from identity theft, make sure that any personal information you give out is going to a trusted and secure source. Most companies do their best to protect customer information, but your information can be leaked if they get hacked. Using free credit monitors every month (Credit Karma by Trans Union, Borrowell by Equifax) keeps you on top of what is going on with your credit. You can set up alerts when there are changes to your credit to notify you by email. Note: For the most part, online shopping is safe as long as you look for the secure lock symbol in the address bar: Determining what is safe will get easier once you know what to look for when it comes to these website security features. As a general rule of thumb, I tend to stay with large recognized brands and stay away from companies or websites I haven’t heard of. Fraud can be scary, but following these tips will go a long way in protecting you and your information. If you’re interested in some more reading and education about scams, you can follow the links below. Strong passwords: https://security.harvard.edu/use-strong-passwords * A quick word on LastPass. I have used LastPass for a few years now and I highly recommend it since it takes all the hard work out of generating and remembering strong passwords for every account you set up. CRA resources: https://www.canada.ca/en/revenue-agency/campaigns/fraud-scams.html CPA information: https://www.cpacanada.ca/en/news/canada/2019-03-21-fraud-protection-tips
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