IS A VARIABLE RATE MORTGAGE RIGHT FOR YOU?
(NC) - If you are not a market watcher, a variable rate mortgage may make you nervous. With this type of mortgage, the interest rate payable fluctuates with the prime lending rate. While a variable rate mortgage can save you money when you are financing your home purchase, you need to be comfortable with the associated risks.
As a general rule, variable rate mortgages offer lower interest rates than fixed term mortgages. In the long run, variable rate mortgages have proven to be a good bet to save money. This is especially true today, with prime lending rates still at low levels. More and more Canadians have been turning to variable rate mortgages to finance their home buying.
There are three basic types of variable rate mortgages available on the market today:
- Interest rate changes with prime or stays just below prime - these types of mortgages can be either closed or open. If there is a discount on the prime rate, the mortgage is usually closed.
- Interest rate is discounted and has a special introductory offer - this type of variable rate mortgage carries an introductory rate that is discounted from the prime lending rate for a specified length of time. After the introductory period, a smaller discount may apply for the remainder of the term. These types of mortgages are usually closed.
- Interest rate fluctuates and is capped - this type of mortgage offers the security of a cap on the interest rate, which means that your interest rate will never rise above a certain level, often the 5-year fixed rate. The interest rate is usually higher than the prime lending rate, but this type of mortgage offers protection against rising interest rates. These mortgages are usually closed.
For more information about whether a variable rate mortgage is right for you, contact your financial institution. - (NC)
- From News Canada
