Fixed vs. Variable - Part 1

The question that I get asked the most frequently is: which is better, a 5-year Fixed Rate or a Variable Rate mortgage?  Well, the answer depends on a few different factors that extend beyond just the rate of interest.  For example, can you afford an increase in rates over the next 5-years?  How comfortable are you with not being locked-in to a fixed rate, etc..  I am going to blog on this topic often, and, in this entry, we are going to look at what the interest rates in Canada have done over the past decade.


Examine the information below.  The average prime rate (and even a prime-plus, which is not included here) is significantly lower than the average 5-year rate.

Average Prime Rate in Canada: 4.22%
Highest Prime Rate observed: 6.25%
Lowest Prime Rate observed: 2.25%  

Average 5-Year Fixed Mortgage Rate in Canada: 6.33%
Highest 5-Year Rate observed: 7.54%
Lowest 5-Year Rate observed: 5.19%

Clearly, over the past decade, utilizing a Variable Rate mortgage would have scored you a clear advantage.  Of course, what happened over the past 10 years is not nearly as important as what is going to happen over the next ten years.  We will explore this topic in greater detail in upcoming posts.