Fixed, Adjustable, or Variable: Three Words That Decide Your Payment

When your renewal letter or a new mortgage offer lands, three words do most of the heavy lifting: fixed, adjustable, variable. They sound alike. They do not behave alike, and the difference shows up in your payment, your penalty, and how well you sleep when rates move.

A fixed rate stays put. Your rate and your payment do not change for the whole term, no matter what the Bank of Canada does. Simple, predictable, and for many people that is worth a lot.

An adjustable rate moves with prime. When prime goes up, your rate and your payment go up. When prime comes down, both come down. You feel every move, right away, in the payment itself.

A variable rate, the closed kind, also moves with prime, but your payment stays the same. What changes is how much of each payment goes to interest and how fast you pay the balance down. If rates climb far enough, your payment can stop covering the interest, and that is where people get caught.

One more thing people mix up: the penalty to break an adjustable mortgage is the same as the penalty on a variable. The big penalty surprises almost always come from fixed rates.

I put the three side by side in one picture so you can see it at a glance. Have a look at the poster above, then ask yourself one question: when rates moved this week, which of the three would you have wanted to be holding?

Not sure which one fits you? Take my two minute quiz, Which Rate Fits You?, and find out which type suits your budget and your plans: https://brokrbuilt.ca/which-rate-fits-you/5jz3QBwB1btod2xCRAEcWYzxY7JRkgvI

If you are within a year of renewing, or you are choosing on a new mortgage now, a 15 minute call sorts out which one fits your life. Book here: https://calendly.com/toniamercer-the-mortgage-missus/dc

Always in kindness, Tonia | The Mortgage Missus Inc.