Talking more about your mortgage questions!
In this video, Chris Molder, a Toronto mortgage broker, sits down to talk about the four things that everyone should know about variable rate mortgages.
4 things everyone should know about variable rate mortgages
Don’t feel like watching? Find the full transcript below!
Not sure how variable rate mortgages work? This video is for you!
What should I know about variable rate mortgages?
Hey, I’m Chris, and this is 4 things everybody should know about variable rate mortgages.
Mortgage rates are relative
Number one, when you are negotiating a variable rate mortgage, you are not negotiating a specific rate, but rather a specific formula of the prime rate plus or minus a certain factor.
Mortgage rates may fluctuate
Number two, the effective rate of your mortgage can fluctuate as the prime rate changes. The Bank of Canada meets eight times per year to make monetary policy decisions regarding the overnight lending rates and decisions that affect the overnight lending rate impact the prime rate that is used to calculate your mortgage.
Penalties are capped
Number three, variable rate mortgages have a standard breakage penalty of three months of interest. Which is great compared to fixed rate options, which include a clause called the interest rate differential. Additionally, the nice thing about variable is that three months of interest is typically the lowest penalty payable to exit a mortgage.
You can convert to a fixed-rate mortgage
And finally coming in at number four is the ability to convert your mortgage. So variable rate mortgages have this amazing clause built into them that allows you to pick up the phone, call your lender and switch from a variable rate into a fixed rate. Now, you should be aware that the rate being offered when you do a conversion is going to be the rate that’s available and offered by the lender at that time. So it’s usually an increase to the rate. But at least if rates start to increase, you have the ability to lock in. No fees, no penalty. A simple phone call to the lender.
Helping you find answers for your mortgage matters!
Looking for more information about getting a mortgage when self-employed? I’m dedicated to improving my client’s financial literacy and solving hard money problems. Get in touch with confidence. Book a call directly via my calendar below, or you can get in touch with me here.
