A variable rate mortgage is where the interest rate of your mortgage fluctuates with the prime rate of your bank as well as other mortgage lenders.
What determines the prime rate?You may have heard that your mortgage rate / payments went up because The Bank of Canada raised its policy rates.
That’s true. However, The Bank of Canada doesn’t set mortgage rates. But it does impact variable rate mortgages. Variable rates are linked to mortgage lenders’ Prime Rate, which depends on the Bank of Canada rate.
When the economy is strong, the Bank of Canada may have to raise its policy rate to keep inflation from rising above its target. Likewise, when the economy is weak, it may lower this rate to keep inflation from falling below target.
Changes in the policy interest rate lead to similar changes in short-term interest rates. These include the prime rate, which is used by banks and other lenders as a basis for pricing variable-rate mortgages.
A policy-rate change can also affect long-term interest rates, especially if people expect that change to be long-lasting.
How’s does it impact your variable rate mortgage?
In most cases, your mortgage payments increase or decrease with the changes in the interest rates.
Some lenders keep the mortgage payments unchanged but apply more of your payment to the Interest. This leads to a higher Principal balance at the end of the term that initially calculated.
The two questions that anyone ever asks me are: ‘Are house prices going to go down?’ and ‘Is it a good time to fix my mortgage rate? – Evan Davis
Mortgage options are many and constantly changing. However, mortgages are not complicated to understand if someone can explain the technical terms to you in easy language. I love sharing my knowledge with people and explaining various mortgage options available because I am passionate about helping people choose the mortgage and financing options that is right for them.
Do you have questions about mortgage?
• Want to know if this is a good time to choose Fixed Rate Mortgage or Variable Rate Mortgage?
• Are you considering a Variable Rate Mortgage and want to know if its right for you?
• Do you have a Variable Rate Mortgage and want to know
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- How will the rising rates impact your payments?
- What are your options?
• Want someone to explain to you about the mortgage and your options in simple way?
Feel free to Contact Me. No fee, no agreement and no credit check/credit report required for my advice. It’s free, friendly, and confidential. 😊