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Mortgage Minute 21: Why Are Variable Rates Higher Than Fixed?

Variable Rates Are Higher Than Fixed!?

Are they supposed to do that?

Variable mortgage rates are higher than fixed. What exactly does this mean?

 Interest Rates are Inverted!?!


It is a common understanding that taking a 5-year variable rate mortgage nearly always costs less when compared to a 5-year fixed rate mortgage. 

Usually, the variable rate at the start of a mortgage term is LOWER than the fixed rate at the same time. That helps make the choice easier. 

However, right now, I am recording this in December 2022, the variable rate mortgages are higher than available fixed interest rates.

Not all lenders have the same rates, but I will use examples from a few non-bank mortgage lenders that are commonly used, and happen to have lower published rates than the major banks do.

Here are a few examples of rates – both fixed and variable:

This first example makes a few assumptions:


  1. It assumes the Bank of Canada is done with rate increases. While that may not be the case, it certainly could be. For the time being, it seems the bank is threatening increases if inflation doesn’t calm down, but I interpret that to primarily be posturing so that we continue to respond to the threat.
  2. I am using an approximation of the average rate expectations of the major banks, but rounding those off (both up and down) to quarter percent changes since that is what the changes actually are.
  3. This only takes their projections to the end of 2024 – and then assumes no further changes up or down after that. If rates continue to trend lower after 2024, then we would see greater savings than I will show, and if rates go up, then we would see lower savings than I will show.
  4. I am assuming a $100,000 balance and a 25 year amortization starting in January 2023. This allows you to easily multiply to get to your own mortgage amount. If you are comparing to a mortgage with a shorter amortization, the end result is similar, but skews toward a slightly smaller savings. 

Here we see rates start to drop toward the end of 2023, and then a total of 1.25% of drop over about a 12-month period. This shows a savings over 5 years of nearly $2000 for every $100,000 owing on the mortgage. However, I suspect this might be a bit optimistic with the rate decreases.

Let’s try another example

with the same type of purchase mortgage, but with one more quarter percent increase in the spring, and then a 6 month delay on the start of drops and an additional quarter percent drop at the end of it to offset the increase in the spring of 2023.

Other than changing the interest rate changes, the other assumptions remain the same.

Here we see that by adding a quarter percent increase in the spring of 2023, and then delaying the rate drops by 6 months, our savings over the five years are reduced to just under $500 for every $100,000 owing on the mortgage.

These two examples are very similar to what we would see with 20% down, or on refinance application since the spread between fixed and variable in all cases is similar.

Need Help Making This Hard Decision?

Right now, the decision is harder for sure! There is absolutely the risk of further rate increases. But on the flip side, there is the very real possibility of significant savings over the coming years by choosing a variable rate today.

Only time will tell what happens. Your risk tolerance and your ability to handle, or not handle, fluctuation in payments associated with a variable rate should be the primary factor in deciding if a variable or if a fixed rate is right for you.

As always my team and I are ready and willing to advise you on the best options going forward. Book a with us today and we will review your situation and give you the best advice possible.

Our Commitment is to open and honest advice. We strive to bring you the most up to date and relevant content when it comes making decisions about your mortgage.

Ready to Talk?


Josh Tagg

Owner of Mortgages For Less, writes about current market trends, and how they impact the mortgage market.


December 16, 2022



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