Thursday, November 17, 2005

Adjustable Rate vs. Variable Rate Mortgage - What is best for you?

The Adjustable Rate Mortgage is quickly becoming one of the most popular options for consumers. There is a tremendous spread between the prime interest rate and a fixed long term mortgage. This spread can be as much as 3% and with the average mortgage in Canada approaching $130,000, this difference in interest rates can be tremendous.

How does an adjustable rate mortgage work? The adjustable rate mortgage is quite different than traditional mortgages in that long-term mortgages are priced according to Bond market, while the adjustable rate mortgage is priced in accordance with the prime interest rate.
The longer the term, the higher the interest rate. This is not always true but generally speaking it does hold true. By selecting a longer term mortgage you are agreeing to pay a higher interest rate for the term. It is similar to paying an insurance premium to guarantee the interest rate but the insurance premium is the higher rate.
An adjustable rate mortgage gives you total control. Your mortgage would renew every 3 months at a fixed interest rate. If you change your mind and decide to convert to a longer term, you would be guaranteed a minimum discount off the banks posted rates.
The variable rate mortgage allows you to have the best of both worlds. Short term pricing with the ability to lock in your rates at any time.
There are over 70 variable rate or adjustable rate mortgage products in the Canadian market right now. Let us explain your best mortgage options.

Below is just one of the options available:
Prime less .80% for the mortgage term
Maximum 95% Loan To Value
Semi-annual compounding
Five year term delivered in automatically renewed three months fixed rates periods
Prior to conversion open for repayment on payment of three months interest.
Monthly, weekly, or bi-weekly payments available
15% and 15% prepayment/payment increase
Ability to convert to a 3, 4, or 5 year term at any time at a guaranteed discount
The discount off Royal Bank Prime is guaranteed for the renewal periods
Guaranteed 1% discount off banks posted 3, 4, or 5 year rate a time of lock in

Rachelle Czartorynskyj

1 comment:

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