variablemortgagerate

Fixed mortgage rate vs. Variable mortgage rate: How do they work? Canadian mortgage applicants can select either a fixed or variable interest rate. The overall interest cost of a mortgage will be affected by the interest rate structure chosen. Your interest rate will either be locked in (called “fixed”) for the duration of your mortgage or it will be variable (called “floating”). We can show you how the differences between fixed and adjustable mortgage rates over the course of five years stack up. Five-year fixed mortgage rates Five-year fixed mortgage rates guarantee that your interest rate and monthly payment won’t change for the length of your contract. Fixed rates are more stable than variable ones, but they also tend to be more expensive. Your mortgage contract will be in place for the whole five years, as suggested by the name, with a five-year fixed-rate mortgage. Mortgages in Canada typically run for five years, but can be taken out for as little as six months. Mortgage interest rates are fixed for the duration of a fixed-rate mortgage loan. This means that your mortgage payments will remain stable until your current mortgage contract expires and you need to negotiate a new one. This is why many people prefer fixed-rate mortgages over adjustable-rate mortgages for peace of mind. Mortgages with a variable interest rate have interest rates that may change periodically over the course of the loan’s duration. As the overnight rate set by the Bank of Canada fluctuates, so too do prime rates set by individual banks. Right now, the prime rate stands at 5.45%. Mortgages with a fixed interest rate can, at long last, be open or closed. When a mortgage is open, extra payments can be made on a regular basis or in a lump sum without incurring any fees or penalties. A general rule of thumb is that closed mortgage terms have lower interest rates than open mortgage terms since they limit the borrower’s options Five-year variable rate mortgage When market interest rates are low, as they have been for the last several years, five-year variable-rate mortgages in Canada are a great option. Variable-rate mortgages, which have historically been less common in Canada than fixed-rate mortgages, might save money for borrowers who are willing to deal with some interest rate volatility over the course of a five-year loan. A five-year variable-rate mortgage, as the name implies, is issued for a period of five years. You can get a mortgage for anything from six months to ten years in Canada, with the average being five years. Your interest rate on a variable-rate mortgage will change throughout the course of your loan’s term in response to fluctuations in the prime rate set by your lender. Contrast this with fixed-rate mortgages, which don’t fluctuate throughout the course of the loan’s initial five years. For instance, if you have a mortgage with a variable interest rate, you might see a phrase like “prime plus” or “prime minus” followed by a percentage. With a “prime plus 0.5%” mortgage, your interest rate will be 3% if the lender’s prime rate is 2.5%. Your interest rate is currently 3.5%, but it would be 3.75% if the prime rate were to climb to 3%. How this affects your mortgage payments is conditional on the specifics of your variable-rate mortgage. In the case of some mortgages with a variable interest rate, the monthly payment won’t vary even if the rate does. Instead, it calculates the interest and principal components of each payment. When the interest rate on a loan drops, more of each payment goes toward paying down the loan’s principal. As the percentage used to calculate interest on your balance changes, the impact of an increase in the variable rate grows. Even if your monthly payment remains the same, the length of time it takes to pay off your mortgage increases as interest rates raise. Other types of mortgages, known as variable rate mortgages, feature payment adjustments (these are sometimes called adjustable-rate mortgages). If you have a mortgage with a variable interest rate, your monthly payments will fluctuate as the interest rate does. The amount you owe is calculated by multiplying the lender’s prime rate by the margin you agreed to in your mortgage contract (often a percentage point or two)