What is a Variable Rate Mortgage? 📈

 

A Variable Rate Mortgage is a type of mortgage where the interest rate can fluctuate over time based on changes in the Bank of Canada's Prime Rate. This means your mortgage payments can go up or down as the Prime Rate changes. 

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How does a Variable Rate Mortgage work? 🔄

With a Variable Rate Mortgage, your interest rate is typically set as "Prime Rate minus a certain percentage". For example, if the Prime Rate is 5% and your rate is Prime minus 0.8%, you would pay 4.2% interest2. Your payments can be set up in two ways: a fixed payment with the interest portion fluctuating, or a fixed principal payment with the interest portion changing.

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What are the advantages of a Variable Rate Mortgage? 🌟​

• Potential Savings: If interest rates drop, your mortgage payments will decrease, potentially saving you money over time.

• Flexibility: You have the option to convert to a fixed-rate mortgage if rates start to rise.

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What are the risks of a Variable Rate Mortgage? ⚠️

• Rate Increases: If interest rates rise, your mortgage payments will increase, which could strain your budget.

• Uncertainty: The fluctuating nature of variable rates can make budgeting more challenging.

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Is a Variable Rate Mortgage right for me? 🤔

It depends on your financial situation and risk tolerance. If you can handle potential rate increases and prefer the chance to benefit from rate decreases, a Variable Rate Mortgage might be a good fit. It's important to discuss your options with a mortgage broker to determine the best choice for your needs.