Variable Vs. Fixed: Here’s How Mortgage Payments Stacked Up Over The Past 2 Years

Variable-rate mortgage holders have been at the mercy of the Bank of Canada over the past year and a half, and a new report from RATESDOTCA digs into just how bad the rate pain really is.

The insurance, credit card, and mortgage comparison platform outlined two mortgage scenarios on Monday: one in which a variable-rate holder took out a five-year insured mortgage of $500,000 at a 1.25% in July of 2021, and another in which a fixed-rate holder took out the same mortgage at the same time, but locked in a rate at 1.99%.

“The data shows that ten rate hikes in, the individual who had chosen a variable-rate mortgage has paid $23,579 more as of September 2023 in cumulative interest as compared to what they would’ve paid had the rate remained unchanged,” writes Shaistha Khan for RATESDOTCA.

This means the variable-rate holder has had to shell out 63% more in total interest than the fixed-rate mortgage holder, and would have surpassed the total amount of interest paid by the fixed-rate holder by November 2022, says Khan.

Victor Tran, a mortgage and real estate expert with RATESDOTCA, says that variable-rate mortgages “surged in popularity when interest rates were rock-bottom during the early days of the pandemic.” As a result, variable-rate quotes escalated to a 57% share of total mortgage quotes on RATESDOTCA by July 2022. By December 2022, however, that proportion was sliced by more than half, at 26%.

Many variable-rate holders are (justifiably) facing a bit of mortgage regret, says Khan.

“As the BoC walks the tightrope between inflation and other core measures, and grapples with the decision to increase or pause rates with each announcement, some variable-rate holders might even consider either refinancing their mortgage and switching to a fixed-rate mortgage, or waiting out until their renewal date to make the jump,” she writes.

There could be some advantages to sticking with a variable-rate product, notes Tran. More specifically, he points to “potential lower penalties compared to fixed, and the potential to gain from future rate decreases.”

However, Tran also says that the decision to stick with a variable or switch over to a fixed is highly personal and should hinge on a homeowner’s financial circumstances and goals, as well as where rates end up when it comes time for a borrower to refinance or renew.