If your mortgage renewal date is approaching, you’re likely facing an important decision: Should you choose a fixed- or variable-rate mortgage? This choice can have a significant impact on your finances over the next few years, so it’s important to understand how each option works and what might be best for you.

Let’s the pros and cons of fixed and variable-rate mortgages, helping you make an informed choice that aligns with your financial goals.

What is a fixed-rate mortgage?

A fixed-rate mortgage locks in your interest rate for the entire term of your mortgage. This means your monthly payments remain the same, providing predictability and stability – no matter how interest rates move in the market.

Pros of a fixed-rate mortgage:

• Stability: Your interest rate and monthly payments remain consistent throughout the term.
• Protection from rate increases: If interest rates rise, your rate stays the same, shielding you from higher payments.
• Predictable budgeting: Fixed payments make it easier to plan your finances.

Cons of a fixed-rate mortgage:

• Higher initial rates: Fixed rates are often slightly higher than variable rates at the start.
• Limited flexibility: Fixed-rate mortgages can come with higher penalties if you decide to break the mortgage early.

Who should consider a fixed-rate mortgage?

A fixed-rate mortgage is a great option for those who:

• Prefer the security of predictable payments.
• Are risk-averse or uncomfortable with potential rate fluctuations.
• Plan to stay in their home for the duration of the mortgage term.

What is a variable-rate mortgage?

A variable-rate mortgage has an interest rate that fluctuates based on the prime rate set by the Bank of Canada. While variable rates can often be lower than fixed rates, they carry the risk of increasing payments if rates rise.

Pros of a variable-rate mortgage:

• Lower initial rates: Variable rates are often lower than fixed rates at the outset. Although, in the current market, variable rates are still higher than most fixed rates.
• Potential cost savings: If rates remain low or decrease, you can save money over the term.
• Lower break penalties: Variable-rate mortgages typically have lower penalties if you decide to break the mortgage early.

Cons of a variable-rate mortgage:

• Payment uncertainty: Monthly payments can increase if interest rates rise.
• Financial risk: Rising rates can lead to higher overall borrowing costs.
• Potential stress: Some homeowners find the unpredictability of variable rates stressful.

Who should consider a variable-rate mortgage?

A variable-rate mortgage may be a good choice for those who:

• Are comfortable with risk and can handle potential rate increases.
• Want the flexibility of lower break penalties.
• Believe that interest rates will remain stable or decrease over their term.

Market conditions to consider in 2025

Choosing between a fixed or variable mortgage is often influenced by the current economic environment and where interest rates are headed. In 2025, we’re seeing factors like:

• Recent rate drops: If the Bank of Canada continues to drop rates, a variable rate could be a better option as you could be catching the market at a good time for variable.
• Economic uncertainty: In times of economic uncertainty, fixed rates can provide peace of mind, while variable rates can offer savings if rates stabilize or decrease.
• Inflation concerns: Persistent inflation may lead to a slow own in rate drops, or even rate hikes, making fixed rates more attractive.

Why your lender choice matters

When renewing your mortgage, it’s not just about the rate – it’s also about working with the right lender. Speaking to an unbiased mortgage brokerage such as ours at Homewise, provides:

• Access to multiple lenders: Including major banks, credit unions and monoline lenders.
• Unbiased advice: Focused on finding the best mortgage for your unique needs – not just pushing a specific product.
• Rate and feature comparisons: Highlighting options that offer the best combination of rates, features and flexibility. Overall ensuring you are not pigeonholed.

Making the right decision for your renewal

Choosing between a fixed or variable-rate mortgage isn’t one-size-fits-all. It’s about balancing:

• Risk tolerance: How comfortable are you with potential rate fluctuations?
• Financial stability: Can you afford higher payments if variable rates increase?
• Future plans: Do you anticipate moving, refinancing or paying off your mortgage early?

At the end of the day, nobody has a crystal ball. So, the best way to think is what is not only right for your financial situation today, but also into the future as well.