5.2.7 Interest rates

The interest rate you negotiate may be fixed or variable. Each has its own advantages and disadvantages.

Fixed interest rate

With a fixed interest rate mortgage, you agree to a certain "fixed" rate of interest in the mortgage contract. This interest rate is set for the entire term, and the amount of your payments is also fixed.

Because the interest rate does not change, you know how much interest you will have to pay and how much of the original loan amount will be paid off during the term. A fixed term gives you security and a predictable budget.

Variable interest rate

With a variable interest rate mortgage, the interest rate can change during the term. It is adjusted to reflect market interest rates, which generally follow the Bank of Canada Bank Rate. The Bank Rate varied from 4.75 percent to 0.5 percent between 2005 and 2014.

Interest rates from 2005 to 2014

The interest rates on variable-rate mortgages are often lower than on fixed interest rate mortgages with the same term length, so variable interest rate mortgages may be attractive and save you interest in the long term. But it's very difficult to predict which will be the lower-cost option over the term of the mortgage.

With a variable-rate mortgage, the mortgage payments can be fixed or variable or a combination of both.