The Facts About Variable And Fixed Mortgage Rates
As mortgage brokers, one of our most important jobs is to source lenders who offer great rates and terms for our clients, which means knowing our stuff. There's a lot of jargon that goes with home financing options and since it's second nature to us, we are often asked to explain the terms used in the business. One of the most common questions our mortgage brokers at Dominion Lending in Edmonton are asked is, What's the difference between variable and fixed mortgage rates? We decided to set the record straight so you know exactly what the difference is between the two.
What are Variable Mortgage Rates?
A variable rate mortgage is a product that comes with a base rate (usually prime), and a modifier that is adjusted up or down according to the prime lending rate by the Bank of Canada. For example, the prime rate may be set at 2.7% and they offer you a variable mortgage rate of prime - 0.2 %. If the Bank of Canada's rate at the time of signing is 2.7%, you would be paying 2.5% (2.7-0.2=2.5). When the Bank of Canada performs its reviews several times throughout the year, it may adjust the prime rate up or down, according to how the economy is faring. If a rise in the prime rate is in order and let's say they raise it to 3%, your new rate becomes 2.8% effective immediately and your next mortgage payment will reflect the increase.
For several years, we've been experiencing some of the lowest interest rates in history, so a variable rate mortgage has been a good choice for many Dominion Lending Edmonton customers but, there can be drawbacks if interest rates rise. It doesn't take long for a percentage point to add up when you're considering interest on $100,000.
Fixed Rate Mortgages Explained
A fixed rate mortgage has less financial risk for both lenders and consumers alike, but only for the term of the mortgage. If you are a person who wants to know exactly what your monthly commitment will be for the term of your mortgage, then a fixed rate mortgage is probably the best option for you. A drawback to fixed rate is since you are locked into that rate for the length of the mortgage term, the interest rate is typically higher than variable rates. Once the term of your mortgage is over and it is time to renew, you will be subject to rates that are current at that time.
Get Help from Experienced Mortgage Brokers
Making the decision to opt for a variable or fixed mortgage interest rate can be difficult, which is why at Dominion Lending Centres we have knowledgeable mortgage brokers that can help you choose the mortgage that is right for you. Contact us today and we can look at your current financial position and help you choose the option that is your best fit.Request Mortgage Info