Your dream of owning a new home is about to happen, but you still have a couple of decisions remaining: a fixed or variable rate mortgage? What to do …

It is important to understand that mortgage rates fluctuate with the prime rate, which is determined by the Bank of Canada, as well as the bond market.

Your decision must be taken depending on your risk tolerance and flexibility of your budget. Variable rates are often lower than fixed rates, but fixed rates will protect you against interest rate fluctuations throughout your mortgage term.

To better understand, see the following illustration listing the advantages and disadvantages of each option.

Many people will take advantage of low interest rates to purchase a bigger home, by extending themselves to the maximum. Then they start to panic when rates begin to climb. For those with a budget that is extended to the maximum, a fixed rate is recommended.

When buying your first home, you need to be prepared for the many costs associated with your purchase: down payment, the welcome tax, municipal and school taxes etc. As well, there are additional indirect expenses, such as: home improvement & minor renovations, buying lawn mowers, etc. To conclude, if the purchase of your new property leaves no room to maneuver within your budget, then you likely should choose to go with a fixed-rate mortgage. While those who have a higher tolerance for risk and are not financially strapped, can opt for the benefits of a variable rate mortgage.

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