5 Things You Need To Know About Variable Rate Mortgages

Variable rates are currently at all-time lows, and because of this more and more people are considering them as an option to finance their homes. In this video, I discuss the 5 things that you need to know about Variable rate mortgages.

#1 - Variable rates are not a number they are a formula

Variable rates are not an actual number but a formula applied to prime in the form of a premium or discount. For example, Prime - one means you need to subtract one from the prime rate to calculate the mortgage rate. As of April 29 2021, the current prime rate is 2.45% therefore, 2.45% - 1 = 1.45%

#2 - Variable rates may change throughout the term of your mortgage

The Bank of Canada meets Eight times a year to determine if they will make any changes to the overnight rate. The overnight rate typically directly affects the prime rate. If the bank decides to increase the prime rate by 0.25% from 2.49% to 2.70% the new prime rate will apply to the formula used to calculate your mortgage rate.

#3 - Penalties are modest

The penalties you are required to pay if you decide to exit your mortgage before the end of the term are three month's worth of interest. This is typically the cheapest penalty to leave a mortgage before the end of the term.

#4 - You can switch to a fixed-rate at any time

Throughout the term, if you decide that a variable rate mortgage does not suit your needs you can convert your mortgage into a fixed rate at any point with no fees or penalties. The fixed rate you would receive would be your lender's current rate on the day that you made the request to change your mortgage type.

#5 - Historically variable-rate mortgages save money

If you analyze variable rate mortgages over the last two decades in a majority of the cases variable rates were cheaper than fixed rates. Using this logic choosing a variable rate over a fixed rate seems like an easy decision however the truth is that no one really knows what the future of interest rates will be and if the historical trend will continue.

If you have any questions regarding variable-rate mortgages or any mortgage-related questions please give me a shout. My door is always open and I love to talk about mortgages.

BOOK A CALL WITH ME HERE!