Fixed vs Variable Mortgage for First Time Buyers

Short answer: A fixed rate keeps your rate and payment the same for the term, which makes budgeting easy but usually means a larger penalty (interest rate differential) if you break it early. A variable rate moves with the lender’s prime rate and usually has a smaller penalty (about three months’ interest). Many first time buyers choose fixed for predictability. Both must pass the same stress test.

Once you’ve sorted out your down payment and pre-approval, the next question is usually: “Should I go fixed or variable?” You’ve probably heard strong opinions both ways. Here’s how each works.

Fixed vs Variable, Simply

Fixed rate: the rate and payment stay the same for the whole term, for example five years.

Variable rate: the rate changes with the lender’s prime rate. Depending on the type, your payment or the split between interest and principal changes too.

How a Fixed Rate Mortgage Works

• Rate locked for the term, commonly three to five years
• Monthly payment stays the same
• Protected from rate increases during the term
• At the end of the term you renew or refinance at current rates

Why first time buyers like it: predictable payments, less stress when rates move, good for buyers stretching to afford their first home.

Watch for: less flexibility to break early, and penalties often based on the interest rate differential (IRD), which can be large.

How a Variable Rate Mortgage Works

Your rate is prime plus or minus a discount, and it moves when prime moves. There are two types:

1. Adjustable payment variable: your payment rises or falls as rates change.
2. Fixed payment variable: your payment stays the same but more or less of it goes to interest. If rates rise a lot, the payment may eventually increase.

Why some buyers like it: historically lower cost over time (with more risk), and a smaller penalty to break, typically three months’ interest.

Watch for: payments can rise, which isn’t ideal if even small changes cause stress.

Key Trade Offs

→ Related: How the Mortgage Stress Test Works

Questions to Ask Yourself

1. How much wiggle room is in my budget? If every dollar is spoken for, fixed may reduce stress.
2. How long will I stay in this home? If you might sell or refinance early, variable’s smaller penalty could save money.
3. How do I feel about uncertainty? If rate news stresses you out, fixed lets you stop watching the news.
4. What’s the market doing? We can talk through whether locking in makes sense right now.

Can I Switch From Variable to Fixed Later?

Many variable mortgages let you convert to a fixed rate during the term. You get the fixed rate available when you convert, not the rate from when you signed, and there may be limits on the term you can pick. Confirm the feature before signing.

Hybrid Options

Some lenders let you split the mortgage between fixed and variable portions, for example 50/50, for a mix of stability and flexibility.

A Reminder From 2022 and 2023

When the Bank of Canada raised rates quickly in 2022 and 2023, many variable borrowers saw their costs jump. Ask yourself honestly: how would I handle a payment $200 to $400 a month higher?

How We Help

We don’t push one option. We walk through your budget and risk tolerance, the current rate environment, “what if rates rise 1% or 2%” scenarios, and penalty comparisons in case life changes. Book a call and we’ll run the numbers together.

This article is general information, not personal financial advice. Rates, rules and programs change. Talk to a licensed mortgage broker about your situation. Lacroix Mortgage Group is licensed and powered by Mortgage Connection Inc.