Fixed vs Variable vs Adjustable Rate Mortgages - Explained Like Grocery Shopping
Mortgages are confusing. Fixed, variable, adjustable? Feels like you're picking from a menu written in code.
So let's break it down in a way you'll actually remember: grocery shopping.
That's right. Because understanding mortgages shouldn't require a finance degree. Just a grocery cart and a little imagination.
Fixed Rate Mortgage = A Weekly Meal Kit Subscription
Imagine you subscribe to a meal kit. You pay $200 every single week. It doesn’t matter if groceries become more expensive or if steak goes on sale at your local store. Your kit stays the same price. Same meals, same portions, every week.
That’s a fixed-rate mortgage.
Your payment never changes during your term (usually 1 to 5 years)
It’s easy to budget for
You’re protected if interest rates go up
Downside? If interest rates fall, you're still locked in at the higher rate. It’s the price you pay for peace of mind.
Variable Rate Mortgage = A Shopping List with Changing Prices
Now imagine you go grocery shopping every week with the exact same list. Bread, eggs, milk, snacks. But the prices change.
One week your total is $185. The next? $212. Between flyer sales, recalls on food, shortages for eggs because of outbreaks, etc., your weekly cost can vary.
That’s a variable-rate mortgage.
Your interest rate moves with the market (the bank's prime rate)
When rates go up, your monthly payment increases
When rates drop, your monthly payment decreases
BUT: Your amortization (aka how long your mortgage takes to pay off) stays the same. You're still making progress, just with a moving monthly cost.
Variable and Adjustable rates are similar - you’re still stepping into the grocery store, but the amount you spend and/or the amount of food you get can vary.
Adjustable Rate Mortgage = Same Budget, Changing Cart
With adjustable rate mortgages, you still spend $200 a week on groceries. But what you get in the cart? That depends on current prices. And might not be aligned with your goals of eating as you are expecting this week.
When prices are low, you leave with a full cart.
When prices spike, you walk out with less.
That’s an adjustable-rate mortgage:
Your monthly payment stays the same
But the amount going toward interest vs principal changes - meaning, if interest spikes high enough, there’s a chance that you’re literally just throwing money at interest.
If rates stay high long enough, and you’re barely touching the principal, your lender may step in and say: “Time to increase your payment.” - or in our grocery example, your spouse may look at you and say “$200 isn’t enough, we need to bump it to $250 going forward to make sure we can eat this week”.
You're paying the same total, but how much of it helps you own more of your home changes. And if it gets too lopsided, your amortization stretches longer than you'd like. I’ve seen some adjustable rate mortgages at renewal with amortizations of 40, 50 years - for no reason other than interest increased, and the clients never inquired to increase payments, and the lender never bumped things up. Which is an unpleasant surprise.
Which One Should You Pick?
If you hate surprises and want stable budgeting? Fixed might be your best friend.
If you want to ride the market and can handle payment changes? Variable could save you money.
If you like steady payments but don’t mind some behind-the-scenes volatility? Adjustable might work. But be mindful of the market - just because your mortgage payment isn’t changing on the surface, things certainly are changing behind the scenes.
There are other factors like market predictions (“Milk is going to be super expensive for the next 5 years!”), your goals (“are you planning to become a farmer?”), or if one of your little “chicks” are going off to university - all of these factors can help build a case for one mortgage over the other this time around.
Want help picking the one that fits your budget and your lifestyle?
Book a free call with me today and let's figure it out together.
Final Thoughts: Understanding mortgages doesn’t have to be hard. If you can grocery shop, you can get this.
The real question isn't "which mortgage is best?"
It's: which one makes the most sense for you right now?
Let’s talk. I’ll help you pick the mortgage cart that gets you what you need - without surprises at the checkout.
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Jeff Dinsmore
Mortgage Broker
FSRA # 10315
TMG - The Mortgage Group