Fixed vs Variable: Finding the Right Mortgage For You

Real Estate 101
October 22, 2013

As a home-buyer, first timer or not, deciding on the best mortgage for you is a big part of the process! We know it can get a little confusing or overwhelming at times, so here's an easy definition of the 2 main mortgage types out there.

Fixed Rate Mortgage:

A fixed rate mortgage offers a specific interest rate that is fixed or "locked-in" for the term of the mortgage. That means you'll know exactly what to expect, including:

  • The interest rate of your mortgage
  • The amount of your regular mortgage payments
  • The portion of your payment that goes toward principal and interest
  • The amortization of your mortgage (how long it will take to pay it off)

Variable Interest Rate Mortgage

With a variable rate mortgage, your payments stay the same but the portion of the payment that goes towards the principle of your mortgage and the portion that goes towards the interest on your mortgage can fluctuate. For example, if the prime rate goes down, more of your payment will go towards paying off your principal amount. If the prime rate increases, more of your payment will go towards interest costs.

But wait there’s more! You've also got to consider whether you’re going with an open or closed mortgage.

• Open mortgages allow flexibility to pay as much as you'd like at any time (ideal if you're expecting large amount(s) of money).

• Closed mortgages with consistent payments are usually favourable to first-time homebuyers.

In summary:

• Fixed interest rates will not change during the entire duration of your mortgage loan.

• Variable interest rates will fluctuate based on the market.

To make the process even smoother for you, Excel Homes works very closely with the RBC Royal Bank, providing a mortgage specialist for our home buyers. We know that buying a home is a big decision both emotionally and financially, so we've got support readily available to you.