Of Prime Interest: Choosing the right mortgage

…variable rate mortgage where the interest rate can fluctuate month to month.

  • Oct. 27, 2015 10:00 a.m.

One of the most popular types of mortgages is the fixed rate option. A five-year fixed rate mortgage is currently available as low as 2.59 per cent.

Fixed rate means the interest rate remains the same over the term of the mortgage, in contrast to a variable rate mortgage where the interest rate can fluctuate month to month.

If you have a set budget and want to have a predictable monthly payment, a fixed-rate mortgage might be your best option.

While fixed rates haven’t been this low in decades, a risk associated with a fixed rate mortgage is the penalty you may face should you need to prematurely pay off the mortgage.

Penalties can range from a three-month interest penalty to what is referred to as an interest rate differential, the difference between your original mortgage interest rate and the interest rate that the lender can charge today when relending the funds for the remaining term of the mortgage.

An interest differential is an unknown, and depending on rates at the time you pay the mortgage off and how far along in the term the mortgage has progressed when you pay it out, an IRD penalty can be devastating.

Rates for fixed mortgages tend to be strongly linked to the bond market. In most cases, when the bond rates go up fixed rate mortgages follow with an increase.

With a variable mortgage, if the prime rate increases or decreases your rate and payment will fluctuate.

However, a variable rate mortgage typically offers more flexible terms than a fixed rate mortgage. And you can convert from a variable to a fixed rate at any time without a penalty.

You will be offered the fixed rate available at the time of conversion.

Variable rates are linked to the prime interest rate set by the Bank of Canada.

The Bank of Canada is not a commercial bank and their principle role, as defined in the Bank of Canada Act, is “to promote the economic and financial welfare of Canada.”

A variable rate mortgage might be right for you if your budget is somewhat flexible and you feel comfortable with fluctuating interest rates. Historically, choosing a variable mortgage rate has been more cost-effective than locking in on a five-year fixed rate.

Just Posted

Zero-emission student housing planned at UBC Okanagan

The Skeena project will open in September 2020

Okanagan chefs battle at Great Kitchen Party

Chef Kai Koroll of 50th Parallel Estate Winery won the event Friday night

Pre-season booming at Big White with Hallmark movie production

Big White is the main drop for Hallmark’s film Alice in Winterland

Kelowna man sentenced to 18 months probation for filming co-workers in washroom

The man was conditionally discharged following a sentencing hearing on Friday

Owner of Lake Country’s controversial Airport Inn charged with assault

Raif Fleihan was charged with assault with a weapon, uttering threats and breach of recognizance

Abortions rights advocates urge Liberals to turn politics into policy

Conservative Leader Andrew Scheer was pressed to clarify his stance abortion over several weeks

Closing arguments begin in B.C. case launched in 2009 over private health care

Dr. Day said he illegally opened the Cambie Surgery Centre in 1996 in order to create more operating-room time

MacLean says “Coach’s Corner is no more” following Cherry’s dismissal from Hockey Night

Cherry had singled out new immigrants in for not honouring Canada’s veterans and fallen soldiers

MacKinnon powers Avs to 5-4 OT win over Canucks

Vancouver battled back late to pick up single point

Dallas Smith, Terri Clark to perform on CP Holiday Train’s B.C. stops

Annual festive food bank fundraiser rolling across province from Dec. 11 to 17

Poole’s Land finale: Tofino’s legendary ‘hippie commune’ being dismantled

Series of land-use fines inspire owner Michael Poole to sell the roughly 20-acre property.

Port Alberni mom takes school district to court over Indigenous smudging, prayer in class

Candice Servatius, who is an evangelical Christian, is suing School District 70

Family of B.C. man killed in hit-and-run plead for tips, one year later

Cameron Kerr’s family says the driver and passengers tried to cover their tracks

Chilliwack family’s dog missing after using online pet-sitting service

Frankie the pit bull bolted and hit by a car shortly after drop off through Rover.com

Most Read