A Realtor Explains the Difference Between Fixed and Variable Mortgages

When you're buying a home, one of the most important financial decisions you'll make is choosing the right mortgage. For many first-time home buyers, the options can feel overwhelming, especially when faced with the question: Should I choose a fixed-rate mortgage or a variable-rate mortgage?

As your realtor, I've seen how this decision impacts buyers not just at closing, but for years to come. Let's break down the differences between these two mortgage types so you can make the choice that best fits your budget, risk tolerance, and long-term goals.

What is a Fixed-Rate Mortgage?

A fixed-rate mortgage locks in your interest rate for the entire length of the term (often 1 to 5 years in Canada, though some lenders offer longer). This means your mortgage payments stay exactly the same until your term ends.

Advantages of Fixed-Rate Mortgages:

• Predictability: You always know what your payment will be, which makes budgeting easier.
• Protection from interest rate hikes: Even if market rates rise, your payment doesn't change.
• Peace of mind: Many first-time buyers prefer the stability of fixed payments.

Disadvantages of Fixed-Rate Mortgages:

• Higher initial rates: Fixed rates are usually higher than variable rates at the start.
• Less flexibility: If interest rates fall, you won't benefit from the lower rates.
• Costly penalties: Breaking a fixed mortgage before the term ends often comes with steep prepayment penalties.

Best For: Buyers who want stability, peace of mind, and predictability in their monthly budget.

What is a Variable-Rate Mortgage?

A variable-rate mortgage (sometimes called adjustable) has an interest rate that can fluctuate with the lender's prime rate. Your payment may stay the same, but the portion that goes toward principal vs. interest will change as rates move.

Advantages of Variable-Rate Mortgages:

• Lower initial rates: Variable rates often start lower than fixed rates, which can save you money early on.
• Potential savings if rates drop: If interest rates decrease, your payments could go further toward your principal.
• Shorter penalties: If you need to break your mortgage, penalties are usually smaller compared to fixed-rate mortgages.

Disadvantages of Variable-Rate Mortgages:

• Uncertainty: Your payments could increase if interest rates rise.
• Budgeting challenges: Not ideal for those with tight financial margins.
• Higher stress in volatile markets: If rates fluctuate often, some buyers may find the uncertainty difficult to manage.

Best For: Buyers who are comfortable with risk, flexible budgets, and who want to take advantage of lower rates.

Fixed vs. Variable: Key Differences at a Glance

Feature	Fixed-Rate Mortgage	Variable-Rate Mortgage
Interest Rate	Stays the same	Fluctuates with market
Monthly Payments	Predictable	May change with rates
Initial Rate	Higher	Lower
Penalty for Breaking	Usually higher	Usually lower
Best For	Risk-averse buyers	Buyers comfortable with market changes

How to Decide Which One is Right for You

When I work with clients in Winnipeg and Selkirk, I always recommend considering these factors:

Your Budget

• Do you need absolute certainty in your monthly payments? Fixed may be the safer option.
• Do you have flexibility in your budget to handle increases? Variable could save you money.

Your Risk Tolerance

• If market fluctuations make you nervous, stick with fixed.
• If you're comfortable with risk and want potential savings, variable may be better.

Your Future Plans

• Planning to stay in your home long-term? Fixed gives peace of mind.
• Thinking you may move or refinance soon? Variable might be better due to lower penalties.

Current Market Conditions

• If rates are historically low, many buyers lock in fixed rates.
• If rates are high and expected to drop, variable could be a smart choice.

Realtor's Advice

Here's what I tell my clients:

• If you're a first-time buyer who values stability, go with a fixed rate.
• If you're an experienced homeowner or investor with financial flexibility, a variable mortgage could maximize your savings.
• Always consult with a mortgage broker - they can run numbers specific to your situation and the current market.

Final Thoughts

Choosing between a fixed and variable mortgage isn't just about numbers - it's about what makes you feel secure in your home purchase. A fixed-rate mortgage offers predictability and peace of mind, while a variable-rate mortgage offers flexibility and potential savings.

As your realtor, my role is to ensure you understand the options so you can make a confident decision. With the right guidance, your mortgage choice will support your goals, your lifestyle, and your future financial success.

Ready to start your home search? Contact Manjot Singh - Realtor in Winnipeg today and let's make your home ownership goals a reality.