Question 1

Fixed vs variable mortgage: which is better in Canada?

Accepted Answer

Historically, variable rates have cost less over a full mortgage term because fixed rates include a premium for rate certainty — research by Dr. Moshe Milevsky found variable rate borrowers saved money roughly 70–80% of the time. However, 2022–2023 demonstrated the risk: variable-rate borrowers saw payments or amortizations balloon as the Bank of Canada raised rates from 0.25% to 5.0%. The right choice depends on: your risk tolerance, how close you are to the trigger rate on a static-payment variable, and your ability to absorb a worst-case scenario. If a 2–3% rate increase would strain your budget to the breaking point, take a fixed rate for payment certainty. If you have significant financial buffer, variable offers a long-term cost advantage.

Question 2

What is the difference between a mortgage term and amortization period?

Accepted Answer

The amortization period is the total time to pay off the entire mortgage — typically 25 years in Canada (or up to 30 years for insured mortgages of new builds, or with 20%+ down). The term is the length of the current rate contract — 1, 2, 3, 5, or 10 years are common. At term end, you renew at current market rates. A 25-year amortization with a 5-year term means you have a rate locked for 5 years, then renew; you do this approximately 5 times over the life of the mortgage. Longer terms (5, 7, 10 years) provide rate certainty; shorter terms (1, 2, 3 years) offer flexibility to renew or refinance sooner.

Question 3

What is a collateral charge mortgage in Canada?

Accepted Answer

A collateral charge mortgage registers a higher amount than your actual mortgage balance against your title — typically up to 125% of the property value. TD Bank and some other lenders use collateral charges exclusively. Pros: easier to access home equity later (no re-qualification for additional draws if your property increases in value). Cons: much harder to switch lenders at renewal without paying legal fees to discharge and re-register (standard charge mortgages switch for free or minimal cost). If you plan to switch lenders for a better rate at renewal, a conventional/standard charge mortgage gives more flexibility and negotiating power.

Question 4

How are mortgage rates determined in Canada?

Accepted Answer

Fixed mortgage rates are primarily driven by Government of Canada bond yields (especially the 5-year bond). When bond yields rise, fixed mortgage rates follow within days to weeks. Variable rates are directly tied to the Bank of Canada overnight rate plus a "prime" rate set by major banks (prime rate = BoC rate + 2.20%). When the BoC raises its policy rate, variable-rate borrowers see payments or amortizations change immediately at the next payment cycle. Lender competition, your credit score, the property type (owner-occupied vs investment), and loan-to-value ratio also impact the specific rate offered to you personally.

Type	Rate Behaviour	Risk Level	Best For
5-year fixed	Locked for term	Low	Rate certainty; risk-averse buyers
Variable (adjustable rate)	Fluctuates with prime	Medium-High	Financially flexible; long-term lower cost
Variable (static payment)	Payment constant; amortization changes	Medium	Variable savings with payment predictability
1–3 year fixed	Locked short	Medium	Expect rate drops soon; short-term planning
Open mortgage	Variable or fixed; prepay anytime	Low (flexibility)	Paying off quickly; expecting to sell
Closed mortgage	Prepayment limited (10–20% cap)	Higher (penalties)	Lower rate; will hold for full term
HELOC (revolving)	Prime + spread	Medium	Home equity access; Smith Manoeuvre

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