Fixed or Variable Mortgage Rates: What’s Best For You?


Fixed mortgage rates have been dropping – right now, the best 3-year fixed rate we’re seeing is close to 5.78%. 

On the other hand, variable rates are sitting at 6.5%, and it hasn’t moved because it follows Bank of Canada’s rate decisions. So, this actually makes fixed rates look visibly cheaper these days. 

But wait … 9 out of 10 “mortgage lifeguards” are saying, “Go with variable!” So what should you actually go with?

In this video, I’m going to break down whether fixed or variable is the better choice for you. Let’s dive in!

Cheapest Choice Based On Today's Forecasts

We’re not economic experts, so we’re going to defer forecasts to the economists from our big banks to get a sense of where rates might go. And these days, we’re seeing more clues now that 2025 forecasts are slowly coming out.

Now let’s say we get a 3-year mortgage at the start of 2024.

Right now, fixed rates are 70 basis points cheaper and let’s assume it stays that way at the start of 2024. We’ll assume try to go more conservative and assume that higher variable rate at the beginning of the year will stick around for the entire year. So in the first year, fixed rates are cheaper.

Moving on to 2025, we’ll keep going conservative and use the highest forecasted rate from the banks. Right now, BMO suggests that variable rates will be around 50 basis points lower than they are now and if that happens, fixed rates end up being 20 basis points cheaper for 2025.

Fast forward to 2026, and variable rates might drop by another 125 basis points. If that happens, variable rates will end up winning in the last year but by a much bigger difference of 105 basis points. 

So using our pretty conservative stance, we still see variable rates being the cheaper option over the next few years – but if you decide to choose variable, make sure you understand your risks.

Other Considerations

As you probably know by now, variable rates can be risky. By going with a variable mortgage, you’re sacrificing the predictability that a market-proof fixed rate mortgage gives you. You’ve probably heard of the saying, “high risk, high reward”, and this is what a variable rate mortgage typically gives you. 

Another downside is that since variable rates are higher at the start, it means will qualify for a slightly smaller mortgage.

Going variable isn’t bad in terms of risks – sometimes, it could work out for the right mortgage holder. Investors that take on big projects typically fork out renovations costs upfront, and the later refinance the property to cash it all out after the project is done. 

And if you do this, then going variable might end up being better if you feel like fixed rates might fall because the penalty for breaking the fixed rate mortgage might be pretty hefty if that happens. 

I won’t go into the details, but here’s an example using this mortgage penalty calculator. As you can see, going fixed can turn out to be a lot more expensive if fixed rates come down. 

The other benefit is that opting for a variable now if that it generally gives you more flexibility. Basically, if you think your personal circumstances will change a lot over the next 3 years or if you have a strong viewpoint that fixed rates might come down more in the future, going variable might be right for you.

What Lowering Interest Rates Mean For Toronto Real Estate?

Now, our market is very buyer friendly these days and a lot of times, we end up being able to bargain down even more and that’s precisely what happened here. 

Our sales team ended up locking this home up for $1.05 million so the returns look even better at this price. And then if we adjust this for the new lower fixed rate of 5.78% these days, you can potentially get even higher cash flows on day one at over $1,400 a month!

There’s always going to be more uncertainties that pop up – recession talk, unemployment fears, and even news about people moving out of Canada. 

But here’s the deal: our slow housing supply growth and our high immigration goals are real and that’s going to keep prices and rents strong. 

Plus, if look at the basic idea that when interest rates drop, home prices rise, this also helps reduce the risk of investing in Toronto real estate today.

Want To Get Started With Real Estate Investing In Toronto?

We’re not your typical real estate sales brokerage. Instead, we focus on using data and numbers to help you make smarter real estate investing decisions in Toronto. If you want to learn more about real estate investing in Toronto, just reach out.