Jean Richer & Irene Bilinski
Bilingual Sales Representatives

Fixed and Variable Mortgages

A fixed mortgage means that the interest rate on the mortgage stays the same for the duration of the mortgage term (whether for one year or ten). Most first-time homeowners choose a five-year term because it is easier to plan a long-term budget when the principal’s reduction is fixed. With the exception of variable mortgages, the three to five year mortgage terms usually offer the best rates (e.g., someone on a fixed income might prefer stability and ignore the higher rates of ten year mortgage term).

With a variable mortgage (also known as a floating rate mortgage), the interest rates change according to fluctuations in the money markets. The payments stay the same each month for the mortgage’s term, but the amount paid toward the principal rises and falls inversely with changes in interest rates. Variable mortgages should offer the option to lock down the mortgage at a fixed interest rate at the borrower’s discretion (e.g., if interest rates are going up).

Over the last decade, variable mortgages have given better interest rates, but a borrower considering such a mortgage should know their own risk tolerance levels and be willing to keep on top of changes in interest rates, so as to be able to lock down the interest rate if market changes indicate it would be wise to do so.

Anyone who purchases real estate at a high point in interest rates and wishes to change the mortgage to reflect new, lower rates should first check in with their Ottawa mortgage representative as to the fees and penalties involved in re-negotiating their mortgage. It can be less costly to finish out the term with the higher interest rates. Near the end of a mortgage term, consult with the lender’s Ottawa mortgage specialist to see if the lender will waive the fees in order to have the borrower’s business renewed (they are more likely to do so for a five year term than a shorter one).

If you have additional questions or would like to see if you can prequalify for a mortgage in Ottawa you can use our Ottawa Mortgages Directory to find a mortgage broker or mortgage bank specialist to help you.