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

Okanagan Eats back for another year

Okanagan Eats features vendors, chef demos, and so much more. This isn’t your average food show.

Kelowna landfill flooding

The ground is soggy at the Kelowna landfill

Open letter to Premier John Horgan

LETTER: Group called First Things First Okanagan promotes action on climate change

Earth Day efforts undertaken in Coldstream

Society to Keep Kal Lake Blue cleans up Coldstream Creek, Girl Guides pick up trash on Silver Star Road

Lake Country to get a new winery

A development proposal was approved Tuesday by council

Lt.-Gov. Guichon believes she made the right decision

Outgoing Lt.-Gov Judith Guichon said her most memorable moments weren’t surrounding the election

Salmon Arm RCMP arrest one male on child pornography charges

Search of Canoe residence leads to seizure of computers

Highway 33 to re-open Friday

Traffic expected to resume at around 7 p.m.

VIDEO: Smokers talk pot rules at annual 4-20 event

Annual pot protest-meets-festival in Vancouver attracted hundreds to vendors, concert

New funds, recruits set to alleviate B.C. sheriff shortage

The Government of British Columbia announced new sheriff graduates, funding for more classes

Farnworth says five years too long for feds to deal with organized crime in medical pot

Needs to be dealt with much sooner than that, B.C. Public Safety Minister says

UPDATED: Unions, CP Rail come to agreement, avoiding work stoppage

Locomotive engineers, conductors and signals specialists seeking new collective agreements.

B.C. woman known to hitchhike around province missing

Aislynn Hanson, 18, last seen April 13; known to travel throughout B.C. by hitchhiking

B.C. court relies on Facebook to track down missing defendant

A court in Princeton, B.C. relied on Facebook to track down a B.C. missing his court date

Most Read