Variable mortgage rate options can be a great choice for many people and can potentially provide savings opportunities, especially in decreasing rates environment.
Before you make a decision though, there are a few things to know - variable mortgage rates come in 2 different options: with payment that is intended to stay the same and with a variable payment.
In the first case, your payment will remain the same every month (similar to fixed mortgage rate payment), but the portion of interest vs principal in the payment might change. For example, if Bank Prime rate goes up causing your variable rate to go up, the portion of your payment for interest will increase, and the portion of principal will decrease accordingly. On the plus side, your payment amount stays the same every month, and your interest portion will go down if the Bank Prime rate goes down. On the minus side, if we are in the increasing rates environment, your payment can become all-interest (without principal paydown) and if the rates go up to a certain level, your financial institution can even increase the payment.
The other option is when your payment changes with the change in Bank Prime rate. This way you always pay down principal portion as planned, but the interest portion of the payment will fluctuate causing the change of the payment. On the plus side, you are paying down your principal and have savings opportunities in the rate decreasing scenario. On the minus side, if rates are going up and quickly, your payment can also go up significantly.
Some lenders can give you an option to fix your variable rate for the remaining portion of the term, which can be a good solution if rates are forecasted to go up.
As with fixed mortgage rate vs variable mortgage rate, the choice is yours. Book time with me today and let’s talk about your individual situation and options.