| Variable Rate Mortgages in Penticton BC |
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Is a variable rate mortgage right for you? Richard Batke, mortgage broker with Invis explains the variable rate mortgage to help you find out! |
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| What is a Variable Rate Mortgage? |
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It is a mortgage where the interest rate is periodically reviewed and adjusted to reflect changes in the mortgage lender's Prime Rate.
The interest rate on a variable rate mortgage is tied to the lender's prime rate either by a premium or discount. |
| Most lenders are now offering VRMs at a discount from prime. Prime – 0.3% (1.95%) is available at this time. For higher risk applications, rates are at a surcharge over prime.
VRMs are available in 3 and 5 year terms. How Does It Work? |
| Variable rate mortgages have a fluctuating interest rate, following Prime Rate.
Payments can be either a fixed constant amount, or the payment can change with the interest rate, depending on the mortgage lender and your preference. You have the option to lock in your rate in to the current fixed rate for the remaining term, should you choose to do so. Individual lenders have slightly different lock in policies, so be sure to understand the terms of your contract, which your mortgage broker can explain to you. |
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| Why Use a Variable Rate Mortgage?
Lower interest rates. I have clients that have been enjoying a mortgage interest rate of 1.5% for the last year. They have gained tremendous equity in their homes since a good portion of their payment is paying down the principal, instead of interest. What are the Risks? |
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Fixed mortgage interest rates are related to the bond market, and variable mortgage rates are tied to prime rate. The two rates are completely independent of each other.
When you go to lock in your variable rate, you run the risk that fixed rates may be higher than you had anticipated. |
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Is a Variable Rate Mortgage Right for Me? |
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When variable rate mortgages may not be a good choice: |
| 1. If you want to get your mortgage and then forget about it for the next few years, or
2. If your income is likely to remain constant and you want to have a constant mortgage payment.
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When variable rate mortgages may be a good choice: |
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1. If you are comfortable with changing interest rates and want to be involved in managing your mortgage, or 2. If you are considering a short term mortgage, for example 2 year term, a VRM would also make sense. Prime rate would have to increase by over 1% in 2 years to negate the savings enjoyed with the VRM. This is not likely to occur, and if it was occurring, you could still lock in at a current fixed rate. |
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