The variable-rate mortgage ranks among the most popular home financing options in Canada because of the low rates usually available from banks and brokers on variable loans. We have made it easy for you to get information on variable mortgages and to access the lowest current variable mortgage rates available throughout Canada. In fact, we are the best resource for variable mortgages online, as our extensive contacts within the mortgage industry and experience keeping Canadians informed about these financial products mean that you get the lowest rates every time you use our tools. Furthermore, we have provided this guide to help you determine whether a variable-rate mortgage is right for you. Read on to find out more about variable mortgages, and then choose the best rate to quickly apply online.
What, Exactly, is a Variable Mortgage?
Unlike the interest rate on a fixed-rate mortgage, the interest rate on a variable mortgage is subject to change during the life of the loan. In a variable mortgage, lenders calculate the interest rate on your mortgage by taking the prime interest rate set by the Bank of Canada and subtracting a certain number of percentage points from this prime rate. Since the Bank of Canada can change the prime rate up to 8 times a year, the rate on a variable rate mortgage has the potential to fluctuate widely over the course of 12 months. Based on past trends, this means that Canadian variable mortgage rates can change as many as 2 or 3 percentage points in a year on your loan. As the prime rate increases, so will your mortgage payment. As the prime rate decreases, your monthly loan commitment decreases as well.
Canadian variable mortgages may be either open or closed. An open mortgage can be paid off early without an extra prepayment penalty. Closed mortgages, on the other hand, will charge you fees if you pay off your loan before the end of the original amortization term.
Variable Mortgage Rates: Pros and Cons
When trying to decide between a Canadian variable-rate mortgage and a Canadian fixed-rate mortgage, it is important to understand the various pros and cons of the variable mortgage. Historically speaking, these are the pros and cons of variable mortgages:
• Variable mortgages in Canada tend to charge lower fees than fixed-rate mortgages if you have to get out of the mortgage early.
• Some variable-rate mortgages allow you to guarantee that your payment will not go above a certain amount.
• One study has shown that in over 75 percent of all mortgages, those who choose the variable-rate option end up paying less in total interest than those who opt for a fixed-rate mortgage.
• You can lock in your interest rate for a variable mortgage at any time for free in Canada.
• Interest rates on variable mortgages are usually far lower than the rates offered on fixed-rate mortgages.
• A variable mortgage can be changed to a fixed mortgage at any time.
• Interest rate fluctuations can cause your mortgage payment to vary widely from year to year or even month to month within the same year.
• Maximum payment guarantees mean that your original loan term may have to be modified to keep your payments under the promised level, thereby increasing the original amortization period if interest rates rise substantially.
• It is often harder to qualify for a variable mortgage than it is to qualify for a fixed-rate mortgage.
• Changing to a fixed mortgage from a variable mortgage can be costly, eliminating any advantage you may get from the best variable mortgage rates.
Should I Get a Variable Mortgage Rate?
Even after weighing the pros and cons of variable mortgages, it can still be difficult to decide whether or not a variable mortgage is right for you. If you do not mind the uncertainty of payment increases and decreases associated with variable mortgage rates, Canada mortgages with variable rates will be just fine for you. However, if you find it easier to budget your spending when there is no possibility of an interest rate change, then variable mortgages with current variable mortgage rates are not for you. Closely related to this is the predictability of your income. Should you have an income that fluctuates widely from year to year or month to month, you will probably not want a variable mortgage because you may not be able to afford your mortgage payment if it goes up and your income goes down. Those who have a stable, predictable income can choose a variable mortgage with greater confidence because they know better the range of mortgage payments that they can afford.
Considering expected interest rate trends can also help you figure out if a variable-rate mortgage is right for you. When market experts are uniformly predicting that the Bank of Canada is likely to keep the prime rate steady, then it may be a great idea to choose the variable-rate mortgage. Should there be uncertainty regarding what the bank will do, you may want to hold off on taking out a variable-rate mortgage. Either way, you can always get the best variable mortgage rates when you make use of the resources on this site. Moreover, you can also find out about fixed-rate mortgages here if you decide a variable mortgage is not right for you.
Variable Mortgage Rates in Canada: Interesting Facts
There is much more that could be said about variable mortgages. Canada and its citizens should know these interesting facts about variable mortgages and their interest rates:
• From July 2006 through July 2010, Canadian variable rates went from a high of almost 6 percent to a low of just over 2 percent.
• Variable-rate mortgages are not as popular as fixed-rate mortgages. Roughly 65 percent of all Canadian mortgages are fixed mortgages, while roughly 30 percent are variable mortgages.
• Variable mortgages are more popular with older Canadians than they are with younger Canadians.
• The most popular term is the 5 year variable mortgage.
Find the Best Variable Rate
Armed with this information, you now have a better idea as to whether a Canadian variable mortgage is right for you. Choose a rate on this page or fill out the online mortgage application form for more information on Canadian variable mortgages and to access the lowest Canadian variable mortgage rates.