Whether you’re buying your first home, refinancing, or renewing your mortgage, choosing between an open, fixed, or variable mortgage can feel overwhelming. In this blog, we’ll walk you through the key differences between each mortgage type to help you understand which option best suits you, your financial needs, and goals.
To begin, we need to understand the differences between fixed, open, and variable mortgage rates.
What Is a Fixed Rate Mortgage?
A fixed-rate mortgage is locked into a set interest rate for the length of the term chosen. At Mainstreet, terms typically range from one to five years. The biggest advantage of a fixed mortgage rate is that your payments remain the same throughout your term. Once the rate is locked in at the beginning of the term, it does not fluctuate, even if interest rates or market conditions do.
This means that when your payments are applied to the mortgage, the amount that goes to the interest and the principal in each payment remains the same throughout the term. However, at Mainstreet, if you’ve locked in your rate and the rates decrease in the first 90 days, you automatically get the new rate.
Benefits of Choosing a Fixed Rate Mortgage
Fixed-rate mortgages come with several advantages that can make homeownership more manageable, especially if you prefer predictability and long-term planning.
The biggest benefit? Stability. Since your monthly payments are consistent, you can rest easy knowing your rate won’t change if interest rates rise. This allows you to budget more confidently, as your mortgage payments will remain the same throughout your term.
You’re also protected from interest rate increases. If market rates go up, you’re locked in at your lower rate, which can lead to long-term savings and peace of mind, especially in a fluctuating economy.
Long-term financial planning becomes easier. With a fixed-rate mortgage, it’s simpler to plan for other goals, like saving for education, investing, or managing household expenses, because your payment is predictable month to month.
Prepayment flexibility is also available. At Mainstreet, you can typically put anywhere from 5%–20% down on the original principal per year with no penalty. You can also make lump sum payments or increase your regular mortgage payment (up to double) at any time. This is an effective way to pay off your mortgage sooner and reduce interest.
A fixed mortgage rate is great for someone who is planning on staying in the home long-term and wants consistent payments and protection against rising interest rates. If you think this is the right fit for you, book an appointment with a Mainstreet advisor to get started today.
What Is a Variable Rate Mortgage?
A variable mortgage has a fluctuating interest rate, typically set at a 5-year term. Since variable rates are not locked in, they fluctuate based on the current prime rate, which is influenced by the Bank of Canada. When the prime rate changes, your mortgage rate and most likely your payments will change too, and if it goes down, your rate will likely decrease as well.
With a variable mortgage, your payment amount can either increase or decrease over time. While the flexibility can be beneficial, it also comes with some risks.
Benefits of Choosing a Variable Rate Mortgage
Let’s take a closer look at variable-rate mortgages and see how they could benefit you. If interest rates stay the same or even decrease, you could pay less over the term of the loan than you would to a locked-in fixed rate. When rates are lower, a larger portion of your payment can go towards the principal, helping you pay off your mortgage quicker and save on interest costs.
A variable mortgage is great for someone with a little bit more risk tolerance, with some wiggle room in their budget to absorb any potential changes. If you plan on being in your home short term or refinancing in a couple of years, a variable rate could be good for you and offer short-term savings. Lastly, if you are predicting that rates will go down, taking advantage of a variable mortgage can help you save money in the long run.
At Mainstreet, we are here to help you understand how changes in interest rates could impact your mortgage, and together we will work with you to ensure you have the right solution that fits your financial goals and comfort level.
What is an Open Mortgage?
An open mortgage offers more short-term freedom than a fixed or variable option. It isn’t tied to a long-term commitment, which means you can make changes or repay your mortgage early without facing penalties.
Open mortgages are typically offered for shorter terms — usually between six months and one year — and generally have higher interest rates. But for some homeowners, the added flexibility can outweigh the higher cost.
This type of mortgage is often a good fit if you’re planning to make changes soon, such as selling your home, refinancing, or adjusting your mortgage strategy. If you value control over timing and want to keep your options open in the near term, an open mortgage might be the right solution.
Benefits of Choosing an Open Mortgage
Open mortgages are best suited for homeowners who need short-term flexibility or expect changes to their financial situation in the near future.
One of the biggest advantages is the ability to make large pre-payments or pay off your mortgage in full at any time without penalties. This makes open mortgages ideal if you’re planning to sell your home, refinance, or simply want the freedom to pay down your loan quickly.
They can also work well if you’re anticipating a lump sum of money, such as an inheritance, work bonus, or proceeds from the sale of another property. With an open mortgage, you can apply those funds directly to your mortgage without any fees or restrictions.
If you’re relocating for work, in between homes, or unsure about your long-term goals, an open mortgage gives you some breathing room without locking you into a longer term. Since the term is usually short — often six to twelve months — it provides the flexibility to adjust your mortgage as your plans evolve.
Comparing Fixed, Variable, or Open Mortgages
To help you understand how each mortgage type could impact your monthly payments and total interest costs, let’s compare how a fixed, variable, or open mortgage might affect your monthly payments. We’ll use the same scenario for each: a $500,000 mortgage with a 5-year term, or 1 year for an open mortgage and a 25-year amortization.
First, let’s look at the fixed-rate mortgage. At an interest rate of 4.29%, your monthly payment would be $2,709.29. After five years, your remaining balance would be $437,442.11, and you would have paid $99,999.51 in interest over the term.
With a variable mortgage at 4.45%, your monthly payment would be slightly higher at $2,764.99. After five years, your remaining balance would be $438,919.95, and the interest paid over the term would be $104,819.35. Don’t forget that these payments could fluctuate up or down over the 5 years based on the prime rate.
Lastly, for an open mortgage with a 1-year open variable rate of 9.75%, your monthly mortgage payments would be $4,455.69. Over the one-year term, you’d pay $48,533.33 in interest, leaving a remaining balance of $495,065.05. But remember, if you make additional payments to your mortgage during that time, you can reduce your interest costs and pay down the principal faster.
For a side-by-side comparison, view the chart below. Want to try your own scenario? Try our mortgage calculator on our website to compare payments and mortgage rates.