The choice between a fixed-rate or variable-rate mortgage has always been a difficult one for borrowers looking to buy a home or refinance, but with interest rates stabilizing at levels we haven't seen in decades, the risks are particularly high.

Furthermore, variable-rate mortgage rates have decreased after the Bank of Canada raised interest rates, leading to an increase in the cost of loans linked to the prime rates of major banks, but the cost of fixed-rate mortgages has also risen from pandemic lows.

For his part, Frank Napolitano, co-founder and mortgage agent at Mortgage Brokers Ottawa, stated that he still sees some borrowers opting for a variable interest rate, even mentioning that the most recent client who was struggling with a variable-rate mortgage chose to stick with it after consolidating some other debts and extending the amortization period.

Napolitano said, "He decided he would only change because he believes that rates may be at their peak now and the payment set for him at 25 years is something he feels comfortable with. He hopes that with many people struggling, interest rates will go down, and then he will consider locking it in, but he wants rates to drop a little before that."

Napolitano also added that variable-rate mortgages typically have less severe penalties than fixed-rate options if you need to exit your loan early.

Until recently, the cost of new variable-rate mortgages was usually slightly less than fixed-rate offerings.

Now, many of the rates offered for five-year variable-rate mortgages listed on the Ratehub.ca comparison site are higher than the five-year fixed-rate options. This means that banks will have to lower the prime interest rates for variable-rate borrowers to save money over five years.

This makes future changes in interest rates by the Bank of Canada a key pivot point for those deciding between a variable or fixed mortgage.

In its latest interest rate announcement, the Bank of Canada kept its prime interest rate steady at five percent - but the central bank made it clear that it is ready to raise interest rates again to bring inflation down to its target of 2 percent.

For borrowers with variable interest rates, this means they need to prepare for the possibility of rising interest rates before they drop. Depending on the loan terms, this could mean higher monthly payments or extending the loan amortization period if rates rise.

Also, variable-rate mortgages can be converted to a fixed-rate loan without penalty, but you are usually limited to the advertised rate from the lender. If you want to negotiate the fixed rate with your lender or switch to another lender, there will be a penalty.

The fixed-rate option provides stability with monthly payments, but rates today sit at their highest levels in recent memory. With interest rates rising over the past eighteen months, fixed-rate borrowers have benefited from their locks.

However, if they lock in a higher interest rate now, which will eventually decrease, these borrowers will remain stuck with the current rate for the duration of their loan unless they choose to pay the penalty to break their mortgage.

Also, Allison Van Ruyghem, Vice President of Consumer Credit at Meridian Credit Union, recommends potential buyers and upcoming refinancing borrowers start their renewal by reviewing their budget.

She said, "My advice is to start by jotting down your actual living expenses.. Everything you actually spend in a month, then use an online calculator to figure out what kind of mortgage payment you might face." Do this well before renewal, so when you talk to your financial services professional, your eyes are wide open."