Mortgage solution
Fixed mortgage rate
The rate stays put for the whole term, and so does the payment. What remains to check is what it costs to get out early.
What a fixed rate locks in
The rate is set for the entire term (one, two, three or five years, most often) and the payment is identical from the first instalment to the last. The market can do what it wants. Your contract doesn’t move. Pick this structure when the budget has to be predictable, or when a higher payment would be hard to absorb.
The real price: the penalty
Break a fixed rate before maturity and you pay the greater of two amounts: three months’ interest, or the interest rate differential (IRD), which is the gap between your rate and the rate the lender could place the money at today, applied to the balance and the time remaining. If rates have dropped since you signed, the IRD can reach several thousand dollars. It isn’t calculated the same way everywhere, either. Several large banks base it on their posted rate, which pads the bill compared with a lender that uses its actual rate.
Match the term to your plans
A five-year fixed protects you from the market, but it ties you down for five years. If you might sell, move or refinance before maturity, the penalty belongs in the math from day one. Portability (moving the mortgage to another property) and prepayment privileges, often 10 to 20% of the balance a year, determine how much room you keep despite the locked rate.
Comparing two fixed-rate offers
At the same rate, two offers can be thousands apart on the penalty alone. Before signing, check the IRD method, the percentage you can prepay each year at no charge, whether you can raise the payment, and what happens if you move the mortgage. Current market rates are on the mortgage rates page.
Documents to gather
What the lender will ask for.
- Term length and your plans during it
- How the penalty is calculated
- Prepayment privileges
- Portability to another property
- Ability to increase the payment
- Monthly payment and safety margin
Frequently asked
Is the lowest fixed rate automatically the best?
Not at all. Two offers at the same rate can differ by thousands if you have to break the term. The penalty method, the prepayment allowed and portability count as much as the rate.
Can you switch from fixed to variable mid-term?
Not without breaking the contract, and the penalty comes with it. Going the other way, from variable to fixed, is usually allowed without penalty with the same lender.
Have your file reviewed before you commit.
Have my file reviewedFinancing types
Pick the situation closest to yours.
Contact
Tell Mathieu about your project
Buying, renewing, refinancing, or something a bit out of the ordinary: tell us where you’re at, even if it’s still fuzzy. Mathieu gets back to you with next steps and the documents to pull together.
- Your request goes directly to Mathieu
- Across Quebec, in French and English
- No fee on most residential files