I received this synopsis in an eblast on Nov 14/13 from
of MorCan Direct
1006 King St W, Toronto, On M6K 3N2
and I concur, see points at end of MorCan post:
So…. You want to get a Variable Rate Mortgage.
Be careful, some of the offers out there right now will end up costing you a lot more than you think.
Rates on Variable Rate Mortgages are currently ranging from 2.4% (0.60% below Prime) to 2.7% (0.30% below Prime). The difference between the lowest rate available and a slightly higher rate can mean all the difference in the world.
When we hear that certain Lenders are offering really low Variable Rate Mortgages we get a little worried. Lenders will occasionally offer a discount to their peers on Variable Rate Mortgages in order to draw in (edit – New) Borrowers.
When those same Borrowers are looking to lock into a Fixed Rate Mortgage down the road, look out! They get stuck with a Fixed Rate that is much higher than the Fixed Rates being offered to new clients by the same institution.(emphasis added)
The Lender calls this an “Existing Client Rate” (emphasis added); others might call this putting lipstick on a pig. Saving 0.10% for 2 or 3 years only to get hit with a rate that is 1% or 1.5% higher when you try to lock in your mortgage (edit – this) doesn’t exactly develop great relationships between a Bank and its customers, but it does develop higher profits.
Mortgage rates can change as quickly as opinion polls on a city’s Mayor/ local MP/Premier/ Prime Minister etc.
The most important feature of a Variable Rate Mortgage is your ability to lock into a fairly priced Fixed Rate (edit – i.e. darn close to that same Lender’s “Discount Rate”) when it looks like rates are increasing.
There are plenty of great rates available right now in the market, on both Fixed Rate and Variable Rate Mortgages. The key to lowering your borrowing costs remains planning ahead and knowing your goals. You can rely on the Sound, Unbiased Mortgage Advice of MorCan Direct.
Copyright © 2013 MorCan Direct, All rights reserved.
Yep, that’s the nub and the rub of Variable Rate Mortgages (aka VRM) – the “Convertibility” of the Variable Rate Mortgage. You will be contracting for a “term” of 1,2,3,4,5 years ie agreeing to “rent the money” from that Lender for the full term agreed at the outset.
BUT, on a Variable Rate Mortgage you are agree to pay a Fixed % above/below the Prime Rate and as the Prime rate changes (if it does) then your Rate will “vary” in lock-step w the Prime — NB your payments will not change…but the ratio/blend/proportion of principal vs interest components within your payment will vary – the “effect” will be very similar to what happens if the amortization (payments based on a theoretical 10yr, 15yr, 20yr, 25 yr, 30yr period) increased/decreased — you’ll pay more off than expected OR pay off less than expected.