When interest rates are shifting, choosing between a fixed and variable mortgage can feel overwhelming — especially if you’re new to mortgages. Here’s a simple guide to help you decide what might work best in 2025.
What’s the difference?
- Fixed-rate mortgage: Your interest rate stays the same for the term you choose (e.g. 1–5 years), so your payments remain predictable.
- Variable-rate mortgage: Your rate is tied to your lender’s prime rate and can change over time.
In fact, many lenders let you switch from variable to fixed during your term without penalty, giving you flexibility if things change.
Why you might pick a short-term fixed rate
- You want certainty in how much you’ll pay each month.
- You like having stability while keeping your options open — you can reassess when your term ends.
- If you expect rates to drop later, a short fixed-term gives you the chance to lock in a lower rate when renewing.
Why a variable rate could make sense
- Variable rates are often lower initially because lenders price in less risk for themselves.
- If interest rates decline in the future, your rate could go down.
- Some variable mortgages allow you to convert to fixed later.
Which path might be best in 2025?
Because of economic uncertainty, short-term fixed could offer a good balance: you lock in current rates for a short period, retain flexibility later, and avoid being stuck in a longer-term fixed rate that may turn out to be too high.
If you’re comfortable with some fluctuation and believe rates might ease, a variable rate offers more upside — just be ready for occasional shifts in payments.
There’s no perfect option for everyone. The right choice depends on your comfort with risk, your financial stability, and your plans for the next few years.