The Bank of Canada sets the prime rate, which is the rate at which they lend their preferred clients money. The prime rate affects how you borrow money for your mortgage too, especially if you choose a variable rate loan with a three-year term.
This type of mortgage functions on a three-year term. At the end of the three years, you have the option to refinance without penalty. The variable part of the mortgage refers to the interest rate. When you acquire a variable rate mortgage, your interest rate will shift as the prime rate shifts. A variable rate mortgage allows you to take advantage of falling rates as they show up in the market.
Variable rate mortgages offer the borrower two ways to pay down their loan. The first is a floating payment in which your monthly payments increase or decrease based on the status of the prime rate. You also have the option of making fixed payments where your payment amount remains the same for the entire duration of your term, in this case, three years. With fixed payments if interest rates fall, the majority of your payment goes towards your principal (the remaining amount of your loan). If interest rates rise, the bulk of your payment goes towards your premiums (how you are charged interest on your loan).
When you take out a mortgage, the length of your term can have a positive effect on your finances. With a three-year term, you have the flexibility to refinance earlier, after only three years without penalty. Moreover, if you want to switch to a fixed rate mortgage, you only have to wait three years to do so. Finally, if you don’t plan on owning your home for more than three years, this short term is perfect for you.
If you’re unsure as to whether a three-year variable rate mortgage is the right option for you, talk to a broker. When you sit down with a mortgage broker, they will look over your financial and credit information and help you understand the different types of mortgage packages available. Mortgage brokers also offer insight into the lending industry and work with a variety of lenders to get their clients the best rates. If you’re interested in a variable rate mortgage, your broker will let you know if this is the right opportunity to suit your financial situation.Back
Your home is your most valuable asset. It is probably the single largest investment you will make in your lifetime. Your home is more than a place to rest your head and raise a family. Your home contains equity. It is a treasured resource and in some cases, can even be used as an ATM (aka cash back mortgages and HELOCs – don’t worry we’ll get there).
Everyone who is looking to purchase a home will need a mortgage. But, what is a mortgage exactly and why do you need it? Besides being the term to describe a loan secured by real estate, a mortgage allows you to access funding to procure your dream home.
There is a massive difference between mortgages and home equity loans. Read More
The Bank of Canada had hiked the interest rates on three separate occasions over the past eight months. Read More
Many first time home buyers have heard the term “mortgage insurance” but may not understand what it is and why it’s necessary to have. Read More
For new homeowners, or for those looking to renew a lease, rising interest rates will have an effect on your finances. Read More