Fixed Variable Rates

YOU CAN SOMETIMES EXPECT A FINANCIAL REWARD FOR GOING WITH THE VARIABLE RATE. ALTHOUGH THE PRECISE MAGNITUDE WILL EBB AND FLOW, DEPENDING ON THE ECONOMIC ENVIRONMENT.

Watch the video below to learn more about fixer vs variable mortgage rates.

Fixed rate mortgages often appeal to clients who want:

  • stability in their payments
  • manage a tight monthly budget,
  • or are generally more conservative.

For example, young couples, with large mortgages relative to their income, might be better off opting for the peace of mind that a fixed-rate brings. You know your equity is piling up as per your amortization schedule and there will be no surprises when you refinance or renew.

However, you the prepayment penalty may be greater of 3 month’s interest or Interest Rate Differential (IRD). If you want to know exactly how this works, please visit this Government of Canada webpage.

A variable rate mortgage often allows the borrower to take advantage of lower rates – the interest rate is calculated on an ongoing basis at a lenders’ prime rate minus or plus a set percentage. For example, if the current prime mortgage rate is 2.45 %, the holder of a prime minus 0.5 % mortgage would pay a 2 % variable interest rate. The perks of going with variable is the penalty is only 3 months’ inetrest.

However, most people don’t realize the equity being accumulated could be lower than the amortization schedule. Reason being, more of the payments were going towards interest rather than principal.

As a consumer, the best option is to have a candid discussion with your mortgage professional to ensure you have a full understanding of the risks and rewards of each type of mortgage.

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Amritjot Saini

(647) 568 – 5120