What’s the difference between Fixed and Variable Mortgage?
As you all may have heard, the Bank of Canada has increased the overnight mortgage interest rate by 0.5% for the first time in 20 years! With word that there will be another increase in June.
This might have potential buyers high-tailing it to lock into a fixed rate. But before you go on making any commitments, is it really worth it? And for the home owners, what does it mean for your current mortgage?
First of all, there are two types of mortgages you should be aware of; fixed and variable.
If you currently have a Fixed Rate Mortgage congrats! There will be no increases to your mortgage payments for the length of your term, even if the BoC makes any increases. You don’t need to read the rest of this blog unless you’re curious about other options when it’s time for your renewal.
Now, Variable Rate Mortgages are where you might feel a couple bruises forming because this is where the impact is.
In Canada there isn’t only one, but three types of variable rate mortgages. The standard variable mortgage rate, capped variable rate, and the adjustable rate mortgage.
To knock things down to brass tacks, the interest rate changes break down to this. With every 0.25% increase, your mortgage payment will also increase by $12 for every $100,000 that you’ve borrowed. So if you have a $1,000,000 mortgage, your payment just went up $120.
So, before you lock into a fixed rate mortgage from this– Keep in mind that there is still a 1.50% gap between fixed rate and variable rate mortgages. Which means that by the time variable has caught up to fixed, you will have saved a lot of interest.
Get connected to a mortgage expert for your real estate investments by contacting Jas Oberoi.
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