Considering A Variable Rate Mortgage?

By September 10, 2013Mortgage News

If not, you may wish to reconsider given the rise in the fixed rate terms by approx. 1.00% these past few months. One of our many lenders we have to choose from just emailed us today with the following news.

“With Chinese export data beating estimates, and with prospects of a U.S. strike on Syria waning, the government of Canada 5 year bond yield has surged yet again to 2.15% (implying a 5 year mortgage rate of about 3.74-3.79%). As such lenders have no choice but to increase fixed rates and we will move to 3.79% tonight at midnight EST.”

Although we still have a few lenders offering a 5 year fixed rate of 3.59%, it may not be long before they move their rates up as well. A variable rate strategy is becoming more and more favourable these days, especially with a variable rate being available as low as Prime minus 0.45% (currently at 2.55%)! Let’s compare the two and do some “number crunching” on a $300,000 mortgage for both scenarios.

Scenario 1

Mortgage Amount – $300,000

Amortization – 30 years

Rate – 3.79% (5 year fixed rate)

Monthly Payment (P&I) – $1,391.12

Mortgage balance after 12 months – $294,493.55

Scenario 2

Mortgage Amount – $300,000

Amortization – 30 years

Rate – 2.55% (Prime minus 0.45%)

Monthly Payment (P&I) – $1,191.07

Mortgage balance after 12 months – $293,238.59

Your total savings add up to $3,655.56 in your first year (assuming the Prime lending rate stays the same). This is the combination of the reduced monthly payments of $200.05 (totaling $2,400.60 for the year) AND the variable rate mortgage balance being lower after 12 months by $1,191.07.

Is a variable rate strategy something for you to consider? If so, please give us a call for a free, no-obligation discussion and advice to determine whether or not a variable rate mortgage is right for you.