What is the key difference between a fixed-rate and variable-rate mortgage in terms of payment structure?
Correct Answer
A) Variable-rate mortgages typically have fixed payments with changing principal/interest allocation
Most variable-rate mortgages in Canada maintain fixed payment amounts, but the allocation between principal and interest changes with rate fluctuations. When rates rise, more goes to interest and less to principal.
Why This Is the Correct Answer
Option A correctly identifies that variable-rate mortgages in Canada typically maintain fixed payment amounts while the principal and interest allocation changes with rate movements. This is the standard structure for most Canadian variable-rate mortgages, providing payment stability while the borrower bears interest rate risk through changing amortization periods. When rates increase, more of the payment services interest, potentially extending the amortization period.
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