The payment and the interest rate will not change throughout the life of the term.
In exchange for a fixed rate term, your lender will charge you a higher pre-payment penalty if you look to restructure, refinance, or switch lenders.
What Is A Variable Rate?
Your variable mortgage ratecan fluctuate throughout the term.
What Causes The Variable Rate To Fluctuate?
The Bank of Canada meets atleast 8 times a year to discuss the key interest rate.
This is what impacts the bank's decision to increase or decrease the prime rate.
That prime rate is what impacts your variable rate.
How Much Would The Variable Rate Change?
When a change occurs, it is typically by one quarter percent.
Example:
If you borrowed $100,000 your payment will increase or decrease by $12.
Which Rate Provides More Flexibility?
A variable rate provides you with more flexibility.
Your payment can go up but there is a possibility it can go down.
If you have a change in your life, having a variable rate will allow you to get out of that mortgage with a maximum of three months interest penalty.
Some bank fixed rate mortgages can be up to 5% of the loan amount. On $500,000 that is a $25,000 penalty, The same cancellation with a variable rate calculated at three months would be $2,000-$2,500.
