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What Your Need To Know About Variable Mortgage Rates
Mortgage Rates in Montreal
In 2016, the mean price for houses in Montreal was about $345,000. For many residents of Montreal, this is a massive amount of money they can’t afford to finance the purchase of a home. Mortgages are the primary source of funds for buying houses in the Montreal and other parts of the developed world due to the high cost of property development. A mortgage is generally in the form of either a fixed rate mortgage or variable rate mortgage. Both options have their merits and demerits, and the option you choose is largely dependent on many factors. Like variable mortgage rates in Montreal are cheaper than fixed rates. An experienced Montreal mortgage broker will assist you in selecting the right mortgage plan that suits your standard of living.
How Variable Mortgage Work
In a variable mortgage rate, your mortgage repayments change with the fluctuations of your lender’s prime lending rate. A variable mortgage rate is determined by adding or subtracting from the prime rate of the lender. If the prime rate of your lender is 3.40%, and your rate is set at plus or minus .50% of the prime rate, what you pay will be determined by the current prime rate of your lender plus or minus the 0.50% variance. Historically, variable rates are cheaper than fixed rates, although they are unstable and move with the changes in the lender’s prime rate, which is not an ideal situation for people with a fixed income.
Fluctuations in Variable Rates
The behavior of variable rates is influenced by many factors which are beyond the control of the lenders. The most significant factor that affects the movement of rates is the decision of the Bank of Canada. If the bank increases its interest rate, lenders will also increase their prime lending rates and vice versa. Other economic factors such as availability of capital and the risk tolerance of the lender also influence changes in the prime lending rates. But changes in the prime lending rates do not affect the plus or minus variance.
Is a Variable rate mortgage ideal?
Variable rate mortgages offer lower rates but are subject to fluctuations which can increase your mortgage costs considerably. If your income is limited, or you have many commitments drawing from the same source of income, a variable rate mortgage might not be right for you.
Visit a qualified mortgage broker in Montreal who will advise you on the best option after assessing your financial status and other essential details about you.
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Take Advantage Of Difference
The larger the gap between the interest rate on a fixed rate mortgage and a variable rate mortgage the more chance there is that you will benefit from a variable rate. If the difference between a fixed rate and a variable rate is within just a percentage, then it is better to choose a fixed rate and enjoy having a peace of mind.
Your income, lifestyle and risk tolerance will weigh heavily on your decision and will inevitably determine which product suits your circumstance.
With variable mortgage rates you also have the option of an open or closed mortgage.
Open Term Mortgages
It an ideal option if you plan on fully paying off your mortgage in the near future, considering of selling your home, want to prepay a significant amount, or think that rates will go down. An open variable mortgage rate allows to pay off the mortgage during the term, or switch to another term at any time without any additional charges. Being open allows you to put down as much as you want, or pay off the entire mortgage at any time. It also lets you change to another term at any time, without charge. Due to the prepayment flexibility that you receive, higher interest rates apply than for a closed variable mortgage rate for the same term.
Closed Term Mortgages
For a closed variable mortgage rate, payments are usually fixed for the term and this option is ideal if you don’t plan to pay off your mortgage in the near future. You can still choose to pay off your mortgage during the term but this will involve a prepayment charge. The interests rates are lower than in an open variable mortgage and you can convert your mortgage to a fixed rate term of the same length or longer.