What is the primary difference between a fixed-rate and variable-rate mortgage?
Correct Answer
C) Fixed rates stay constant during the term, variable rates fluctuate with prime
A fixed-rate mortgage maintains the same interest rate throughout the mortgage term, providing payment predictability. A variable-rate mortgage fluctuates with the lender's prime rate, which can result in changing payments or payment allocations between principal and interest.
Why This Is the Correct Answer
This answer correctly states the fundamental difference. A fixed-rate mortgage keeps the same interest rate for the whole term, providing payment certainty. A variable-rate mortgage moves with the lender's prime rate, which generally follows the Bank of Canada's policy rate, so either the payment or its split between principal and interest changes during the term.
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