What is the difference between fixed rate mortgages and adjustable rate mortgages?

The difference between a fixed rate and an adjustable rate mortgage is that for fixed rates, the interest rate is set when you take out the loan and will not change. With an adjustable rate mortgage, the interest rate may go up or down.

Fixed rate mortgage: Your rate will be set at the start of your term and will not change

• Maybe a good choice if: You’re uncomfortable with rate changes.
• Benefits: You’ll have the security of knowing what the rate and payment amount will be for the duration of the mortgage term. Your rate is locked in so you’ll be protected from rising interest rates.
• Drawbacks: Mortgage rates can go up, but they can also go down. With a fixed rate mortgage, your rate is locked in. You won’t benefit from lower interest rates if they drop during the term of your mortgage.

Adjustable rate mortgage: Your rate will “float” with the prime rate throughout the term, with the potential to go up or down at any time.

• Maybe a good choice if: You’re okay with your mortgage rate changing over the course of the term.
• Benefits: Your rate will change throughout the term of your mortgage. You can take advantage of lower interest rates if rates do drop.
• Drawbacks: In the event that rates go up, your mortgage rate and your payment amount could increase.