Mortgage Rate Types Explained: Fixed, Variable, Adjustable, and Hybrid Options

Mortgages can seem complicated, but when you boil it down, there are just a few main types. Each one works differently and is best suited for specific situations. Let’s walk through them, so you can figure out what makes the most sense for you.

The Four Main Mortgage Rate Types

Here are the options. Think of them as tools in a toolbox—each one is designed for a specific job:

1. Fixed Rate: Monthly payments stay the same, no surprises.
2. Variable Rate: Payments stay steady, but your time to pay the mortgage down to 0 changes (a.k.a. amortization) adjusts when rates change. (Read more about amortization here)
3. Adjustable Rate: Payments change directly with interest rates while the amortization stays the same.
4. Hybrid: A mix of fixed and variable—giving you some stability and some flexibility.

Fixed Rate Mortgages: Stability You Can Count On

With a fixed rate mortgage, your payments stay exactly the same for the length of your term. It’s predictable and makes budgeting simple.

Why Pick a Fixed Rate Mortgage?

If you value peace of mind or need to stick to a specific budget, this is your best bet. Think of it as a highway with no surprises—steady and consistent all the way.

Variable Rate Mortgages: Steady Payments, Flexible Timeline

Here’s how it works: your monthly payment stays the same, but if rates change, the amortization of your mortgage adjusts. If rates drop, you pay your mortgage off faster. If rates rise, it takes longer.

Why Pick a Variable Rate Mortgage?

If you’re comfortable with a little uncertainty and want to take advantage of lower rates when they happen. This is a good choice especially if you’re concerned about monthly budgeting but aren’t concerned about how long it takes to pay the mortgage down to $0.

Adjustable Rate Mortgages: Payments That Change

Adjustable rates work differently. Your payments go up or down whenever rates change while your amortization stays the same. If rates drop, you save money. If they rise, your payments increase.

Why Pick an Adjustable Rate Mortgage?

This is for people who can handle fluctuating payments and want to benefit directly when rates drop while staying on track with paying their mortgage off on time.

Hybrid Mortgages: A Little Bit of Both

Hybrid mortgages let you split your loan into multiple parts—partly with a fixed rate and partly with a variable or adjustable rate. It’s a middle ground that balances stability with the chance to save.

Why Pick a Hybrid Rate for Your Mortgage?

If you’re unsure about future rates or want to spread out your risk, this is a smart option.

How to Choose the Right Rate Type on Your Mortgage

Here’s what to think about:

• Budget Stability: Do you need payments that never change? → Fixed Rate.
• Risk vs. Reward: Are you okay with some unpredictability? → Variable or Adjustable Rate.
• A Balanced Approach: Want a mix of both? → Hybrid.

Also, consider:

• Where Rates Are Heading: Rising rates favor fixed. Stable or falling rates favor variable or adjustable. This largely has to do with Macro economic trends, the Bank of Canada, and bond yields.
• Your Financial Flexibility: Can you handle changes to your payments or timeline?

The Takeaway

The “best” mortgage depends on your priorities. Are you looking for stability? Flexibility? Savings potential? Whatever your situation, there’s an option that works for you.

If you’re unsure, don’t worry. Let’s talk through your options and find the right fit. After all, your mortgage should work for you—not the other way around.