A fixed rate mortgage (FRM), often referred to as a “vanilla wafer” mortgage loan, is a fully amortizing mortgage loan where the interest rate on the mortgage remains the same throughout the term of the mortgage. Hence the name, fixed rate mortgage.
This differs from other mortgage products where the interest rate may change, or “float” depending on the prime rate, often referred to as a variable rate mortgage (VRM).
Put simply, when you agree to a fixed rate mortgage you know how much interest you’ll be paying for the life of the term. This is true no matter what the Bank of Canada does with interest rates, no matter what you do, no matter what happens to property values in your neighbourhood; you will always have the peace of mind of knowing exactly how much money you’re on the hook for.
If changes occur within your term and for some reason you have to break your mortgage, then early payout penalties are applied. Those penalties are typically the greater of the “Interest Rate Differential” (IRD), or three months worth of interest.
IRD is the difference between the interest rate on the existing mortgage, and the current posted interest rate for a mortgage term similar to the time remaining in the existing term (less any discount given at the time the mortgage was secured).Each lender has a calculation for IRD.
Drop Us A Note
From fixed rate mortgages to helping you complete our online mortgage application form, we are always available to answer your questions on any topic related to home ownership.
Our expertise resides in making the dream of home ownership a reality. Drop us a note and lets get the conversation started.