Fixed or variable mortgage?

If you are looking to buy a new home, refinance your current mortgage to access equity or your mortgage is up for renewal you may be trying to decide whether you should go with a fixed rate mortgage or a variable rate mortgage.

What is the best option? It’s really up to you but make sure you make that decision with all of the information as there are significant differences between these two types of mortgages.

The biggest difference is how the prepayment penalties are calculated. Statistics show that the average mortgage is broken at the 38 month mark despite most banks promoting five year fixed term mortgages so odds are you are going to break your mortgage early.

The maximum amount of interest penalty on a variable rate mortgage is three months interest whereas a fixed rate mortgage penalty is either the interest rate differential or three months interest whichever is higher and sometimes, depending on the lender, the interest rate differential penalty can be very high.

A variable rate mortgage is based on the Bank Prime Rate, which is what financial institutions charge to consumers. Bank Prime is based on the Central Bank Rate (the amount of interest the Bank of Canada charges financial institutions for short term loans).

As the Central Bank Rate increases or decreases, so does Bank Prime and in turn the variable rate along with Home Equity Lines of Credit, Student Loans, etc. All indications are that this rate will stay low well into next year.

A five-year fixed rate mortgage is based on the bond market. As the bond market increases or decreases so does the five-year fixed rate.

A number of years ago, it was clear that going with a variable rate mortgage would save consumers money. But heavy discounts on fixed rate mortgages and the narrowing spread between short-term and long-term interest rates have made the choice today less obvious.

Instead of trying to guess where rates are headed, consumers would do better to think about their own situation. They should evaluate their personal balance sheets and risk tolerance.

The decision of whether to go short (variable) or long (fixed) will depend on the consumers’ tolerance for risk as well as their ability to withstand possible increases in mortgage payments.

The first time home buyer or those with minimal down payment represent the perfect consumer to go with a long-term fixed mortgage rate. 

Something to keep in mind is that variable rate mortgages allow consumers to lock in to a fixed rate at any time without costs. While there’s no up-front cost to the change, not all lenders will lock in at the fully discounted rate.

Consumers should be sure to ask their lender if they will get the same fully discounted fixed rate if they decide to lock in when you first take out your mortgage.

There are many lenders available through mortgage brokers that will offer their best discounted fixed rates should you decide to lock-in. An important consideration if you have a variable rate mortgage.

I generally place my clients with non-bank lenders that do not have a posted rate if they choose a variable rate mortgage.

If they decide to lock-in at some point during the term of the mortgage the best fixed rate mortgage will be offered unlike a bank lender where the locked in rate may not necessarily be fully discounted.

Your goal for your mortgage should be to pay the least amount of interest as possible so if you need to break your mortgage a variable rate mortgage generally will cost you less.

So the answer to whether you should take a fixed rate mortgage or a variable rate mortgage – It depends!

If you are at your maximum purchasing power or you’re a worrywart, lock-in, forget about it, and enjoy life.

If you want to take advantage of the many strategies that are available to maximum the current low rates available on a variable rate mortgage, please give me a call at 1-888-561-2679 or email [email protected] and we can review your personal circumstances. 


What do brokers do?

Do you have a full understanding of my role as a mortgage broker?

A recent report indicated that 74% of the respondents admitted they had at best only a partial understanding of the role of a mortgage broker.

Here are the top five reasons from the survey for potentially not using a mortgage broker and clarification of exactly how a mortgage broker can assist you.

I don’t want to pay for mortgage broker services

This is the primary misconception about using the services of a mortgage broker. Mortgage brokers are independent and work with many banks and direct mortgage lenders.

The lender pays mortgage brokers on terms agreed upon between the lender and mortgage broker. You are not charged a direct fee for their services.

The mortgage broker works with the lender until the closing of your mortgage and then receives their fee from the lender. Occasionally, a broker fee might be charged in very difficult situations but these fees would always be fully disclosed in advance.

I would rather deal directly with the lender

There are many direct mortgage lenders in Canada that can only be accessed through a mortgage broker. Your mortgage broker will analyze your financial situation which includes your credit and employment history and provide you with your mortgage options.

They will then present your application in the most favourable way to the lenders that the broker has determined will best fit your needs.

They will also clearly explain all of the terms and conditions including how pre-payment penalties are calculated so there are no misunderstandings should you need to exit your mortgage early.

The thought of using a mortgage broker didn’t cross my mind

That is totally understandable. Your first thought is to walk into your local bank to apply for a mortgage because this is your main financial resource. Mortgage brokers are not transactional like your bank and will continue to be a source of information for the life of your mortgage.

Your local bank can offer you decent rates and you may be comfortable with them but financing your home is most likely the largest financial transaction you will ever undertake.

Getting the best possible mortgage can literally save you thousands of dollars so working with a mortgage broker who will explore ‘all’ of the available options for you is a prudent choice.

I don’t want to deal with a lender that I’m not familiar with

The monoline lenders (non-deposit taking lenders) that are only accessible through mortgage brokers are an important part of the mortgage industry in Canada. Their mortgage products and low pricing improve consumer choice and force our dominant banks to be more competitive.

Monoline lenders do not have store front locations so these costs are not passed along to the consumer and as a result they generally offer better interest rates and lower penalties should you decide to pay off your mortgage.

They source their business through mortgage brokers and can have more flexible lending programs than the major financial institutions.

I don’t understand what services mortgage brokers provide

Mortgage brokers provide you with more choice as they have access to a network of many lenders that offer different products and services providing you with objective recommendations for your financing options.

Mortgage brokers have access to the best rates and negotiate on your behalf to ensure you receive the best terms on your mortgage for now and into the future.

Mortgage brokers are professionals that have on-going educational requirements to ensure you are always receiving the best independent advice.

If you would like to learn more about how as a mortgage broker I can assist you with finding your best mortgage options, please give me a call at 1-888-561-2679 or email [email protected] 

Don't derail your mortgage

Even if you’ve been pre-approved by your bank or a mortgage broker you could unwittingly derail your mortgage financing.

Here are four items that could go wrong. If you can avoid these types of issues, you’ll be more likely to receive a “final approval” green light from the mortgage lender.

You have insufficient documentation.

Mortgage lenders request a variety of financial documents when approving borrowers for mortgages. You can reduce the chance of document-related problems by rounding up your documents in advance.

his is why as your mortgage broker I always try to anticipate the documents that a mortgage lender is going to request and work with you to gather them before you have found your dream home.

You don’t have enough funds for your closing costs.

All mortgage lenders and the mortgage insurers require borrowers to have additional “cash reserves” in the bank, prior to closing to cover the closing costs. 

Borrowers can be denied a mortgage after being pre-approved if you can’t provide documentation confirming you have these funds available.

Generally the rule is you must be able to prove that you have 1.5% of the purchase price available for closing costs over and above your down payment funds.

You made a large purchase, or purchases and taken on additional debt since pre-approval.

Being pre-approved for a mortgage, or even approved if you are at that stage, doesn’t mean you can go out and make large purchases.

Debt-to-income ratios are very important during the mortgage process. This ratio is basically a comparison between the amount of money you earn and the amount you spend to cover your monthly debts.

Having too much debt can hurt your chances of getting mortgage financing.

To prevent these types of problems after pre-approval, avoid making major purchases or opening new lines of credit. Keep those credit cards in your wallet until you receive a final approval and until after you have moved into your new home.

Your income or employment situation has changed.

As your mortgage broker, I will pre-approve you based on your current income and employment situation. However, if your status changes sometime during the underwriting process, it could cause you to be denied the mortgage.

Just do everything within your power to keep your income and employment situation static until after you have found a home and moved in.

Many lenders will re-confirm your current employment status prior to funding your mortgage particularly right now as we are in the midst of the pandemic.

Here’s what you need to take away from this:

  • A pre-approval can be a helpful step in the mortgage process. It allows you to narrow your search to homes that fit your budget and secure an interest rate. But it’s not a guarantee of financing.
  • A pre-approval is not a mortgage commitment. Most lenders will not even review your application until a property has been found and you have an accepted offer.

As your mortgage broker, I will confirm that a lender will likely give you a mortgage for a certain amount, as long as your financial situation doesn’t change prior to closing and the lender also likes the property you are purchasing.

  • Even having a pre-approval letter does not mean you are home free. Things can still go wrong before the final closing causing the mortgage to be denied.

My role as your mortgage broker is to reduce the possibility of any of the above happening to you during the mortgage process and I will endeavour to make the process go as smoothly as possible.

It may seem like I’m asking many questions and requesting too many documents but that is what is required to ensure you are in the very best position to start your house hunting with confidence.

A mortgage pre-approval is the first step to home ownership. If you would like to start your journey to home ownership please visit here to get started or give me a call at 1-888-561-2679

Home equity line of credit

HELOC is a type of home equity loan and is a revolving amount of credit that is secured against your property.

With the Home Equity Line Of Credit, you can access up to 65% of your home’s value, however, the outstanding balance on your mortgage and line of credit combined cannot exceed more than 80% of the value of your home.

It always has a variable rate of interest based on the current Prime lending rate which today is 2.45%. Rates generally start at Prime plus one per cent and up depending on your qualifications and the lender.

It is fully open, which allows for flexible prepayment without any penalties. You can use the amount available for any purpose you want and only pay interest on the amount of the outstanding balance.

The minimum required payments are interest only.

It’s a great option for accessing equity in your home to put into other investments.

It can be a first position charge or be a second position charge behind your current conventional first mortgage to a maximum of 80% of the value of your property.


  • The interest only payments can be lower than a standard mortgage payment
  • The terms are fully open, which allows flexibility
  • The interest calculations are simple
  • The cost of borrowing is less than an unsecured line of credit
  • It’s great to have available for emergencies


  • The interest rates are higher than conventional mortgages. For example 3.45% compared to a five-year, fixed-term mortgage at today’s rates of 2.04%
  • A charge is registered against your property, so if you sell your property the line of credit will have to be paid in full
  • If you are carrying a long-term balance, the cost can be expensive
  • There is no principal reduction in the amount you owe if you are only making interest payments
  • The rate will fluctuate based on changes in the prime lending rate
  • A line of credit is not portable, so it can’t be moved to a new property and must be paid in full if you sell your current home
  • If you owe other debt to your mortgage lender those amounts may also have to be paid in full

There are a few other facts that should be known about HELOCs.

  • The rate can be increased at any time
  • Your lender can demand the balance outstanding on your HELOC at any time
  • Your lender can raise or lower the credit limit at any time

A home equity line of credit can be a great product if it used as intended as a revolving line of credit, but it can also be risky as it uses up the equity in your home which for many is the only way to build wealth and savings for the future.

In a 2017 report, FCAC (Financial Consumer Agency of Canada) found home equity lines of credit may be putting some Canadians at risk of over borrowing.

That report found most consumers do not repay their HELOC in full until they sell their home.

About 19% of respondents to the survey said they'd borrowed more than they intended and many didn’t know how much they owed.

If you have been carrying the balance on a HELOC for a long time without any principal reduction then it might be time to consider other mortgage options.

Please give me a call if you would like to review at 1-888-561-2679 or email [email protected]

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About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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