Fixed or variable mortgage: how to decide

Your rate type affects your payment, your risk and the cost of breaking the mortgage.

Fixed rate

• The rate stays the same for the term (often 3 or 5 years).
• Predictable payments.
• Breaking it early can carry a large interest rate differential (IRD) penalty.

Variable rate

• Moves with the lender's prime rate.
• Some have fixed payments (the interest portion changes); others have adjustable payments.
• Breaking it usually costs about three months' interest.

How to choose

• Choose fixed if a stable payment matters most and you expect to keep the home for the full term.
• Consider variable if you can handle payment changes and might sell or refinance early.
• Remember you must pass the stress test either way.

For pre-construction buyers

You choose your rate type near closing, not at signing. Ask your lender about longer rate holds for new construction.

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