Last updated
Compare Lenders
Discover Popular Financial Services
What is a Fixed Rate Mortgage and How Does it Work?
If you’re buying a home for the first time or the thought of higher interest rates keep you up at night, then fixed rate mortgages may be ideal for you.
Your mortgage payment and rate are fixed (stay the same) during your mortgage term. That means if you sign up for a 5-year fixed rate mortgage at 3.49%, then your mortgage rate will remain 3.49% for 5 years (provided you don’t sell the property and break your mortgage).
Unlike variable mortgage rates, which are based on a lender’s prime rate, fixed rates typically move based on the bond market. Government bond yields and fixed mortgage rates have a direct relationship – when government bond yields go up, fixed mortgage rates of a similar term length go up and vice-versa.
Although you’re protected from higher mortgage rates during your mortgage term, you can still face interest rate shock upon renewal. If fixed rates are a lot higher when you’re renewing your mortgage, you could be forced to put more of your money towards your mortgage on a monthly basis.
Why You Might Choose a Fixed Rate Mortgage
The main benefit is peace of mind. As mentioned, you don’t have to worry about your mortgage rate going up during your mortgage term. This makes budgeting a lot easier. You’ll know exactly what your mortgage payment will be for the next 5 years (or however long your mortgage term is). This especially comes in handy for first-time homebuyers who may have stretched themselves financially to afford a home. You can budget for your mortgage payments, utilities, property taxes and all other expenses that come with owning a home. (Although you’ll typically pay a higher mortgage rate with fixed rate, the added security that comes with “locking in†may be worth it to you.)
Are you planning to stay in your home for the long-haul? Then a fixed rate mortgage can make sense. You won’t need to worry about your mortgage rate or payment changing during your mortgage term.
Although 5-year fixed rate mortgages are the most popular mortgage in Canada, there’s nothing stopping you from locking in for 7 or even 10 years, if you’re concerned rates will be a lot higher in the future.
Just a word of caution – if you think there might be a chance you could break your mortgage during its term, you might think twice before choosing a fixed rate mortgage. That’s because fixed rate mortgages tend to come with higher mortgage penalties than variable rate mortgages. You’ll typically pay the greater of 3 months of interest or something called the interest rate differential (IRD). If mortgage rates are a lot today compared to when you first signed up, you could face quite a hefty mortgage penalty.
By The Numbers:
For homes bought with a mortgage in 2018, 68% of homebuyers chose fixed rate mortgages.
Source: Mortgage Professionals Canada
Additional Useful Readings
Explore more
I’m very honoured to shear my experience with this illustrious platform. To be able to systematically choose from a list optional to one’s profile without doing much leg work is truly rewarding. This platform allowed to expand my options and chose which lenders fit my profile, thank you and continue doing what you do best,, connecting people to available wealth opportunities.
When you feel in need of a loan do it smart and make it a Smarter Loans.
Very Helpful, was assisted in a timely fashion and was ultimately able to receive assistance; I highly recommend!!!
I have recommended this place to many friends I feel that this company goes out of their way to help people that they can and they are very easy to work with
This company is reliable, quick, and just has the best customer service and rates it is a easy process with quick results. Would definitely recommend to anyone that needs the help.
Personally love this opportunity and app. Super convenient and easy to use and super awesome variety of great loans. Thanks so much guys for making such an awesome site and app and being there for me over the years. :)
From beginning to end, my experience was great! Very professional and personable agents. They only asked questions that were needed for the loan and payments were extremely reasonable. Would recommend to anyone who needs emergency funds.
“ Thank you SO very much! My situation was tricky and you guys made the whole process so effortless. The way you guys handle the whole process so discreetly. That truly speaks to how well your office is run and the caliber of specialists who handled the processing of my entire loan!”
Why Choose Smarter Loans?
Access to Over 50 Lenders in One Place
Transparency in Rates & Terms
100% Free to Use
Apply Once & Get Multiple Offers
Save Time & Money
Expert Tips and Advice
