What's the difference between fixed and variable rate mortgages?

Are you confused about the difference between fixed and variable rate mortgages? Don't worry. You're not alone.

Deciding what type of mortgage works best for you can be a critical step in the home ownership process. When deciding between a fixed or variable rate mortgage, you'll need to decide which one works for your lifestyle and how comfortable you would be if, in the case of a variable rate mortgage, your interest rate could change during the term of your mortgage.

But, before you decide, it's important to make sure you truly understand the difference between the two. Here are a couple key points that can help explain the difference:
 

Fixed rate mortgages

• Fixed rate means your interest rate is locked in for the term of your mortgage.
• Regardless of whether the Bank's interest rate goes up or down, your mortgage interest rate won't change, and neither will the amount of your mortgage payments, for your mortgage term.
   

Variable rate mortgages

• In the case of a variable rate mortgage at TD, your rate would be based on the TD Mortgage Prime Rate, which can fluctuate or vary throughout the year.
• Because your rate is tied to whether the TD Mortgage Prime Rate goes up or down, the variable rate you get when you first sign or renew your TD mortgage can go up and down over the term of your mortgage. If the TD Mortgage Prime Rate goes down, more of your mortgage payment will go towards the principal of your mortgage. On the other hand, if the TD Mortgage Prime Rate goes up, more of your mortgage payment will go towards interest.
• At renewal, you should also expect your mortgage payment amount to be adjusted to maintain your original repayment schedule. Because your payment remained the same throughout your term, in the event that rates rise, this could mean that you will be required to increase your mortgage payment amount at renewal. This can also happen if you change your payment schedule during the term of your mortgage.
   

Should you choose a fixed or variable mortgage?

Generally, if you prefer stability and are concerned that interest rates could rise during your mortgage term, then a fixed rate mortgage is most likely the better option for you – especially if you are a first-time homebuyer.

TD variable interest rate mortgages are an option that works better for people who are more comfortable with a little unpredictability about the amount of their outstanding balance at renewal in the event that interest rates go up during their mortgage term. But if you're not comfortable with interest rate volatility, there is the option – subject to meeting certain conditions – for you to switch your variable rate mortgage to a fixed rate mortgage at the current rates in place at the time of the change.

Knowing what to anticipate can help you feel more confident about your home ownership journey. Speaking to a TD advisor can help give you a clear picture of the facts for your situation and help you figure out what type of mortgage is best for you.

To learn more about mortgage rate options, visit TD Mortgages.