Fixed-Rate Mortgage
Definition
A fixed-rate mortgage locks your interest rate for the entire term, so the payment and the interest portion stay the same no matter what happens to market rates.
How it works
Fixed rates are priced off Government of Canada bond yields for a matching term. When bond yields move, fixed mortgage rates follow within days or weeks — which is why fixed offers can change while you are still shopping.
The advantage is certainty. Your payment is known for the whole term, which makes budgeting simple and protects you if rates rise. The trade-off appears if you break the mortgage early: fixed-rate penalties are calculated using the interest rate differential, which can be far larger than the three-months-interest penalty typical of a variable mortgage.
Fixed is usually the better fit when your budget has little room for payment increases, when you are confident you will stay for the full term, or when you simply value predictability more than the chance of savings.
Quick facts
- Rate and payment are locked for the full term.
- Priced against Government of Canada bond yields.
- Breaking early can trigger an interest rate differential penalty.
Put this into practice
Still have questions about fixed-rate mortgage?
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