Mortgage rates explained
The vocabulary is small once you separate four ideas: fixed vs variable, term vs amortization, points, and what sets your personal rate.
Most rate confusion comes from mixing up the term (your current contract length) with the amortization (the full payoff period). Keep them separate and the rest follows.
Fixed vs variable
Fixed rates lock your rate and payment for the term, trading a slightly higher rate for certainty. Variable rates track the prime rate; they can save money when rates are stable or falling but expose you to increases. Choose fixed if a rising payment would strain your budget, and variable only if you have room to absorb changes.
Term vs amortization
In Canada you sign a term, often five years, then renew at new rates until the mortgage is amortised, usually over 25 years. In the US, 30-year fixed loans lock the rate for the entire amortization. Knowing which model applies tells you when your rate can change.
Points and your personal rate
US borrowers can buy down their rate with points (one point equals one percent of the loan). Your headline rate also depends on credit, down payment and loan type, so two borrowers see different offers on the same day. That spread is exactly why comparison shopping pays.
Frequently asked questions
What is the difference between fixed and variable rates?
A fixed rate stays the same for the term, giving payment certainty. A variable rate moves with the lender's prime rate, so payments or the interest portion change over time.
Is variable always cheaper?
Historically variable has often cost less, but not always, and it carries the risk of rising payments. The best choice depends on your budget's tolerance for change.
What are discount points?
In the US, points are upfront fees you pay to lower your interest rate. One point is one percent of the loan and typically reduces the rate by about 0.25 percent.
What determines my personal rate?
Your credit, down payment size, loan-to-value, the loan type and term, and the overall rate environment. Stronger profiles get lower rates.
How often should I check rates?
Before buying, before each renewal, and any time rates move significantly. Even a small improvement, multiplied over the amortization, is worth a conversation with lenders.