Rates

The current interest rate is what determine how much your mortgage is going to cost you. Look below to see the current rates offered by On-The-Mark Mortgages through Dominion Lending Mortgage Mentors.

What’s the difference between a fixed rate versus a variable rate mortgage?

Fixed Rate Mortgage

A fixed rate mortgage  is a mortgage of any given term (e.g. 1, 3, 5 or 10 years) where the interest rate is set and not subject to change over the course of the term. Therefore, you are in essence locked into a permanent rate for the rest of you term.

The benefits to a Fixed Rate Mortgage are that your interest rate and mortgage payments won’t change until after it’s time to renew your mortgage. The security of knowing your payments won’t change is valuable to many people, and also allows for the ability to easily plan and budget expenses.

Variable Rate Mortgage

A variable rate mortgage is a mortgage of any given term where the interest rate moves in lock-step with your mortgage lender’s Prime Rate. When a mortgage institution offers you a  Variable Rate Mortgage, they offer you a rate based off the Prime Rate. For example, your lender may offer you a rate equal to Prime minus 0.50% or (Prime – 0.5%). The rate is offered in this wording because the Prime Rate can both increase and decrease.

The advantage of a Variable Rate Mortgage is that the rates offered are typically lower than interest rates available with a Fixed Rate Mortgage; however, there is no guarantee that your rate won’t change.

For example, if you signed onto a 3 year variable rate mortgage at (Prime – 0.5%) and prime rate is 3.0%, then your actual interest rate is 2.5%. However if the Bank of Canada raises the prime rate to 3.5%, your new interest will be 3.0%, effectively increasing your monthly payments. However, it is also possible the interest rates could move down, effectively lowering your monthly payments.

So what happens if you signed a Variable Rate Mortgage, and you hear that the Bank of Canada is going to raise the prime rate? Luckily, many mortgage lenders will allow you to lock your variable rate mortgage into a fixed rate mortgage.  In fact, locking into a fixed rate mortgage when interest rates increase is a strategy commonly used by Variable Rate Mortgage holders.

 

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