Variable vs. Fixed Mortgages: What Canadian Homebuyers Need to Know

Variable vs. Fixed Mortgages: What Canadian Homebuyers Need to Know

If you are buying a home or renewing your mortgage, the type of mortgage you choose directly affects your monthly payments and long-term costs. Right now, mortgage brokers are increasingly recommending variable-rate mortgages over fixed-rate ones. This shift could save you thousands of dollars — but it also comes with risk.

What is happening?

A recent analysis from Dominion Lending Centres shows that in mid-June, 56.8% of prime mortgage applicants chose a variable rate. That is up from just 35.9% in March. This is a big change in a short time.

The main reasons are:

• Lower rates: Variable rates through brokers can be as low as 3.74% , compared to 3.95% at big banks for fixed rates.
• Easier qualification: The mortgage stress test adds two percentage points to your actual rate for debt ratio calculations. Because variable rates are lower, it is easier to qualify for a larger mortgage.

What does this mean for you?

If you are shopping for a mortgage, you may get a better deal from a broker than from a bank — especially if you have good credit and a stable income. A lower rate means lower monthly payments. For example, on a $500,000 mortgage, a 0.21% rate difference saves you about $105 per month or $1,260 per year.

However, variable rates can go up. If the Bank of Canada raises its key interest rate, your payments will increase. Fixed rates lock in your payment for the term, so you have certainty.

Who is affected?

• First-time homebuyers — You may qualify for a larger mortgage with a variable rate, but you need to be comfortable with payment changes.
• Homeowners renewing — If your mortgage is up for renewal, now is a good time to compare broker offers against your bank’s renewal rate.
• Rate-sensitive shoppers — If you want the lowest possible rate today, a variable mortgage through a broker is likely your best option.

What you should do

1. Shop around — Do not accept your bank’s first offer. Compare rates from at least two brokers and one bank.
2. Check your credit score — A higher score gets you better rates. You can check your score for free through credit bureaus.
3. Ask about the stress test — Your lender must qualify you at a rate that is two percentage points higher than your actual rate. Make sure you know what rate they are using.
4. Consider your risk tolerance — If you cannot handle a payment increase of $200–$300 per month, a fixed rate may be safer.
5. Talk to a mortgage broker — Brokers have access to wholesale rates that banks do not offer directly to consumers.

Bottom line

Variable-rate mortgages are becoming more popular because they offer lower rates and easier qualification. But they come with the risk of future rate increases. For many Canadians, using a broker to get a competitive variable rate could save thousands of dollars. However, if you prefer predictable payments, a fixed rate may still be the right choice. The key is to compare offers and understand your own financial comfort zone.