With mortgage rates in focus, choosing the right type can feel overwhelming. Whether you're a first-time buyer or refinancing, understanding fixed, variable, and adjustable-rate mortgages (ARMs) is key.

Fixed-Rate Mortgages: Stability and Predictability

A fixed-rate mortgage locks in an interest rate for the term, ensuring consistent payments. This makes budgeting easier and protects against rising rates. In 2024, 75% of borrowers chose fixed rates, though variable rates gained interest as the Bank of Canada cut rates.

Best for: Homeowners seeking stability and long-term security.

Pros:
✔ Predictable payments
✔ Protection from rate hikes

Cons:
✘ Higher initial rates
✘ Less flexibility if rates drop

Variable-Rate Mortgages: Savings with Some Risk

A variable-rate mortgage fluctuates with the lender’s prime rate, affecting how much goes toward interest versus principal. While payments may stay fixed, interest costs vary.

Best for: Borrowers comfortable with risk, expecting rates to stay low or drop.

Pros:
✔ Historically lower rates
✔ Potential savings when rates fall
✔ Predictable prepayment penalties

Cons:
✘ Payments could increase
✘ Requires financial flexibility

Adjustable-Rate Mortgages: Flexibility with More Risk

Offered by select lenders, an ARM adjusts both rate and monthly payments with prime rate changes. Unlike a VRM, payments shift immediately, leading to more frequent fluctuations.

Best for: Borrowers who want lower initial rates and can handle payment changes.

Pros:
✔ Lower starting rates
✔ Potential savings in low-rate periods
✔ Predictable prepayment penalties

Cons:
✘ Payments can rise quickly
✘ Harder to budget

Which Mortgage Type is Right for You?

Your choice depends on your risk tolerance and financial goals. Fixed rates offer security, while variable and adjustable rates provide potential savings with uncertainty.