A Variable Rate Mortgage: The Benefits of an Open Rate for Potential Savings
A variable rate mortgage is a home loan with an interest rate that is not fixed throughout the mortgage term. Instead, it is based on the current Prime Rate.
The rate of this mortgage can be adjusted either upward or downward, depending on fluctuations in the Prime Rate. The adjustable component of the mortgage rate remains constant as a discount from the Prime Rate, ensuring the interest adjustment amount remains consistent over the mortgage’s duration.
While a variable rate mortgage has the potential to save you money, homeowners with stringent budget constraints may prefer the stability of a fixed rate mortgage.
Factors that Influence the Prime Rate
The Bank of Canada adjusts the Prime Rate in response to a variety of economic factors. Inflation, for example, will cause the Bank of Canada to raise the Prime Rate to deter borrowing. An economic decline would prompt the Bank of Canada to lower the Prime interest rate.
Predicting the Prime Rate in Canada is not an exact science; rather, it involves an element of art. With my experience and knowledge, I can address your inquiries and guide you through the process of Prime Rate adjustments. This will help determine whether a variable rate mortgage would be beneficial for you.
Ready to get started? Fill out the form.
Choosing Between Fixed or Variable Mortgage: Tailored to Your Specific Needs
A variable rate mortgage is appealing due to its generally lower long-term cost compared to a fixed rate mortgage. However, it comes with inherent risks, as it is tied to the Prime Rate, making homeowners susceptible to potential payment increases if the Prime Rate fluctuates.
On the contrary, a fixed rate mortgage maintains a consistent interest rate throughout the mortgage term. While historically it may have cost homeowners more over the long term compared to a variable rate mortgage, it provides budget stability for homeowners with limited financial flexibility.
So, Which Kind of Mortgage is Better?
In 2012, variable mortgages accounted for 28% of all mortgages, whereas 65% of applicants chose a fixed-rate mortgage.
Interestingly, 70% of younger buyers opted for a fixed-rate mortgage, while the older population segment showed a willingness to accept a variable (open) rate.
This data suggests that younger and less-established buyers prefer the predictability of fixed rates, while older and more established homeowners are willing to take on the risks in exchange for potentially lower rates.
The good news is that MLJ Mortgages offers a wide range of traditional mortgage products and personalized loan solutions. With my expertise in Canadian mortgages, I can assist you in finding the ideal solution that suits your needs and financial goals.
To kickstart the approval process promptly, simply fill out the form, and let’s begin.
Send me a Message
I will promptly reach out to initiate the process of creating your secure personal mortgage profile and expediting your mortgage pre-approval.