CURRENT MORTGAGE RATES Last updated:  April 28, 2008 Term Bank Rate Our Rate 6 month 6.20% 6.20% 1 year 6.95% 5.00% 2 years 7.00% 5.85% 3 years 7.00% 5.85% 4 years 6.85% 5.69% 5 years 6.99% 5.35% 7 years 7.40% 6.15% 10 years 7.75% 6.40% Variable Prime - 0.6% 4.15% Prime: 4.75% * rates subject to change without notice    .

Variable vs. Fixed Mortgages

The most common question is “fixed or variable – which is my best option?”  This is an easy question but there is a lot to consider on the client’s behalf.  The difference between a fixed and a variable rate is like trying to compare apples to oranges. They each serve a different function.

When dealing with Variable Rate Mortgages (VRM), you are getting an interest rate that is “floating” according to what the prime rate of Canada is doing. We know that with experiencing historically low interest rates, that a VRM has very beneficial factors.  There are many variable rates offered by lenders that would provide you with a rate below Canada Prime Rate.

But the question we must ask ourselves is, “Why isn’t EVERYONE taking a variable rate mortgage”? Seems simple enough… the prime rate of Canada stays low, and my interest payments stay low as well. Ah-Ah! There’s no guarantee that we will stay at these “all time lows” in interest rates. However, all hope in security is not lost when choosing this type of mortgage. The lenders have a “lock in” feature set up within this program that allows you to lock in to their fixed rate mortgage at any time, without penalty. Hey, not bad. It is typical for the banks to set the payment at each month. So, that is to say that if your payment at the start of the month was based on a 5.95% interest rate, it will stay that way until it is set again the following month.

What about prepayment options and prepayment penalties? Usually you can find a bank that will allow prepayment options attached to their variable rate products. If you decide to set your payments to reflect a higher interest rate, the difference between the two payments goes directly to your principle each month. Which can save you YEARS off the amortization of your mortgage.

The penalties on a variable rate mortgage vs. a fixed rate mortgage are probably the most important question that most people forget to ask their broker. 

The prepayment penalty for a variable rate mortgage (breaking the mortgage), is three –months interest whereas a fixed rate mortgage (or commonly referred to as a “closed” mortgage), is set up so that you have “fixed “, payment that you know the amount of each and every month. The prepayment penalty on a fixed rate mortgage is 3 month interest or IRD (interest rate differential) whichever is the greater. 

The fixed rate mortgage may be most attractive for the client who may have a set income, example a pensioner, or a disability fixed income. The fixed rate mortgage is also designed for security in knowing a payment structure and for the purpose of piece of mind.
The variable rate mortgage is for some one who wants to play the market and watches the rates.  They can lock their mortgage in at anytime to a fixed rate but the rate will fluctuate according to the market.

As far as deciding what’s best for YOU, there’s no right or wrong answer! It all depends on a risk and security factor that you’re comfortable with. Everyone has their own idea of “how to get ahead of the game” and how their monthly finances work within their household. Talking to us just may help you find your strategy in YOUR games.