Mortgage brokers in Canada have been arranging Variable Rate Mortgages for borrowers during 2013 at an increased pace. Due to economic conditions, the Bank of Canada has kept the prime rate at 3.00% for an extended period of time and will most likely leave the interest rate as is until 2015. There have been several economic indicators that have sent some dark clouds over the Canadian Economy. Major layoffs by large corporations in Canada and an increasing unemployment rate are causing the government to keep rates low as they have no choice but to try and increase economic activity.
Variable rate mortgages are now being borrowed at an average of 2.5% – 2.7% , between mortgage brokers and banks. The best offers are coming from mortgage brokers in the Prime minus 50 basis points range. A Variable rate mortgage is also attractive because the penalty discharge the mortgage in full later on is always less expensive and less risky , compared to a fixed rate mortgage. With a VRM, there is no interest rate differential. The calculation is based on a 3 month interest penalty.
This is a key factor when deciding on a mortgage, as limiting the mortgage penalties and fees is always advantageous.
The interest savings on a variable rate can be substantial compared to today’s fixed rate average of 3.9%.. A full 1% difference can save thousands in interest payments over a 5 year term. Even if the Bank of Canada were to raise interest rates .50% every year, which is highly unlikely, the variable rate mortgage would still come out ahead.
| 5 Year Fixed 3.94% | Rate | Monthly Payment | Interest Paid | Balance |
| Year one | 3.94 | 1306.93 | 9663.04 | 243,979.88 |
| Year two | 3.94 | 1306.93 | 9423.51 | 237,720.23 |
| Year three | 3.94 | 1306.93 | 9174.44 | 231,211.51 |
| Year four | 3.94 | 1306.93 | 8915.48 | 224,443.83 |
| Year five | 3.94 | 1306.96 | 8646.21 | 217,406.88 |
| Total Paid | 78,415.80 | 45,822.68 | ||
| 5 YearPrime -75 | Rate ( .50% increase/yr) | Monthly Payment | Interest Paid | Balance |
| Year one | 2.25 | 1089.03 | 5,521.67 | 242,453.31 |
| Year two | 2.75 | 1149.01 | 6539.18 | 235,204.37 |
| Year three | 3.25 | 1208.45 | 7489.74 | 228,192.71 |
| Year four | 3.75 | 1267.17 | 8,375.40 | 221,362.07 |
| Year five | 4.25 | 1325.00 | 9,197.21 | 214,659.28 |
| Total Paid | 72,463.92 | 37,123.20 |
$ 5951.88 LESS in Monthly Payments over 5 years
$ 8,699.48 LESS in Interest Paid Over 5 Years
Balance will be $ 2747.60 LESS with the variable mortgage
WANT TO SAVE EVEN MORE?
Use your 20/20 Prepayment privileges to increase your monthly payments and/or apply partial lump sums with each payment and watch the savings grow and your balance decrease!
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