Interest Rates
Fixed vs Variable
There is no wrong choice - at the end of the day, you need to be comfortable with the decision you make, which is based on your individual needs and risk tolerance. The right choice is the choice that makes sense for your circumstances.
Fixed Rates
Fixed rates are just that - a fixed rate for the entire duration of their term. They provide a sense of comfort and stability for those who want a set monthly payment. It allows you to budget accordingly, knowing that your payment won't change.
That being said, interest rates are typically slightly higher for a fixed-rate mortgage than they are for variable rate mortgages. They typically follow the bond yields, and increase and decrease as the bond yields increase and decrease.
The pre-payment penalty to break a fixed rate is 3 months interest, OR interest rate differential, whichever amount is higher.
Variable Rates
A variable interest rate is dynamic and fluctuates based on prime rate. With most variable rate mortgages, if your interest rates increase, your mortgage payment increases to account for the change. This is also true when mortgage rates decrease, your payment will decrease.
Variable rates have been proven to "outperform" over the last 30 years. If you can handle the uncertainty of your interest rate changing, there's a good chance that you'll be paying less interest and more principal over the mortgage term with a variable mortgage.
Prepayment penalties are typically only 3 months interest.
