Fixed vs. Variable Rates...on a Chart

People often ask how variable mortgage rates compare to fixed rates over time.  Here's a chart that illustrates their relationship over the last 10 years.  (click to enlarge)

This graph shows the spread between fixed and variable rates since 1997 (the "spread" = the average fixed rate - the average variable rate).

The higher the spread, the more expensive a fixed-rate mortgage was compared to a variable at that time.

Despite a limited sample size, the chart is consistent with the common belief (and research) that variable rates are the better bet long-term.  In fact, since 1997 variable rates have been almost 1/2% cheaper than fixed rates on average. 

(The average fixed rate since 1997 has been 5.47%.  The average variable rate has been 4.99%.)

While the future may deviate from the past, it's reasonable to assume a "safety" premium will remain built into fixed-rate mortgages.  If you don't need this protection (and most don't assuming they have a hold-the-payment option) then strongly consider the potential savings of a variable rate.

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Note:  The Bank of Canada (our data source) doesn't database actual market rates.  Therefore we've made two assumptions.  For the variable rate we've assumed a 0.5% discount from prime rate.  For the fixed rate we've assumed a 1.5% discount from posted bank rates.  While not scientific, these assumptions are in the ballpark.