Skip to main content

Adjustable Rate vs. Variable Rate Mortgage - What is best for you?

The Adjustable Rate Mortgage is quickly becoming one of the most popular options for consumers. There is a tremendous spread between the prime interest rate and a fixed long term mortgage. This spread can be as much as 3% and with the average mortgage in Canada approaching $130,000, this difference in interest rates can be tremendous.

How does an adjustable rate mortgage work? The adjustable rate mortgage is quite different than traditional mortgages in that long-term mortgages are priced according to Bond market, while the adjustable rate mortgage is priced in accordance with the prime interest rate.
The longer the term, the higher the interest rate. This is not always true but generally speaking it does hold true. By selecting a longer term mortgage you are agreeing to pay a higher interest rate for the term. It is similar to paying an insurance premium to guarantee the interest rate but the insurance premium is the higher rate.
An adjustable rate mortgage gives you total control. Your mortgage would renew every 3 months at a fixed interest rate. If you change your mind and decide to convert to a longer term, you would be guaranteed a minimum discount off the banks posted rates.
The variable rate mortgage allows you to have the best of both worlds. Short term pricing with the ability to lock in your rates at any time.
There are over 70 variable rate or adjustable rate mortgage products in the Canadian market right now. Let us explain your best mortgage options.

Below is just one of the options available:
Prime less .80% for the mortgage term
Maximum 95% Loan To Value
Semi-annual compounding
Five year term delivered in automatically renewed three months fixed rates periods
Prior to conversion open for repayment on payment of three months interest.
Monthly, weekly, or bi-weekly payments available
15% and 15% prepayment/payment increase
Ability to convert to a 3, 4, or 5 year term at any time at a guaranteed discount
The discount off Royal Bank Prime is guaranteed for the renewal periods
Guaranteed 1% discount off banks posted 3, 4, or 5 year rate a time of lock in

Rachelle Czartorynskyj www.mortgagesourcecanada.com

Comments

Anonymous said…
Hi Rachelle Czartorynskyj, your blog is excellent. As I was surfing around today looking for detailed info on mortgage interest I somehow ended up on your page. As your this post is not exactly related to my search, I am certainly glad I stopped by. Oh well, back to surfing and I am sure I will find what I am looking for, and should you ever need information about mortgage interest, then stop by for a look. Thanks for the post.

Popular posts from this blog

Home Equity Loan or Home Equity Line of Credit?

Home equity loans and home equity lines of credit continue to grow in popularity. According to the Consumer Bankers Association, during 2003 combined home equity line and loan portfolios grew 29%, following a torrid 31% growth rate in 2002. With so many people deciding to cash in on their home's equity value, it seems sensible to review the factors that should be weighed in choosing between out a home equity loan (HEL) or a home equity line of credit (HELOC). In this article we outline three principal factors to weigh to make the decision as objective and rational as possible. But first, definitions: A home equity loan (HEL) is very similar to a regular residential mortgage except that it typically has a shorter term and is in a second (or junior) position behind the first mortgage on the property - if there is a first mortgage. With a HEL, you receive a lump sum of money at closing and agree to repay it according to a fixed amortization schedule (usually 5, 10 or 15 years). Much l

Canada's recession resilience (article below)

There will be lots of information coming out today. Bank of Canada governor Mark Carney will be explaining (maybe vaguely) the reasons for the BoC rate drop and expectations we should have for the future, quantitative easing (printing money), and how this will all affect the Canadian economy. Here is an article from the Financial Post that expands on this. Keep an eye on this as it will affect bond rates/yields which could affect mortgage rates. Terence Corcoran: Quantitative schemes at the Bank of Canada Posted: April 22, 2009, 9:17 PM by Ron Nurwisah Terence Corcoran , central banks On Thursday we will learn what the Bank of Canada will do next to stimulate the economy, how it will apply the now famous “quantitative easing” phase of its ongoing effort.The bank is already giving away money, setting an overnight rate of 0.25% — “virtually zero,” as former governor John Crow says in his commentary . At the chartered banks, astute mortgage borrowers can almost lock in less than 2% for