What is the difference between a fixed and variable rate mortgage?
A. Fixed rate means that the rate of interest charged for the term of your mortgage is a set amount and does not change over the term of your mortgage. A variable rate mortgage is one in which the rate of interest will fluctuate in accordance with a bank trend setting rate. This is typically the bank prime rate. Adjusted on a predetermined basis, usually monthly, the rate can be set below, equal to or above the trend setting rate and will move up and down accordingly with that rate. A drop in interest rates will mean that more of your mortgage payment will go towards reducing your mortgage principle. If interest rates rise then less money will be used for reducing your principle and will instead be taken up in the higher interest costs. If you think interest rates will fall over the next 3 to 5 years then purchasing a variable mortgage would make sense. Usually fixed rate mortgages will cost you more since the lender is unprotected from the possibility of future interest rate increases
