Lower Your Variable Rate Mortgage Interest Payment
Would Lowering Your Variable Rate Mortgage Interest Payment Save you Money?
If you are fed up with learning about finances and you, your family or your friends are struggling making high variable rate mortgage payments…just give me a call to discuss options to lower your payments – CONTACT
When it comes to mortgages, there are two main types of interest rates: fixed and variable.
While fixed-rate mortgages offer predictable payments, variable-rate mortgages can be a bit more unpredictable.
Here’s what you need to know about how a variable rate mortgage works, why variable interest rates are currently higher than fixed interest rates, and how you can potentially save money by switching to a fixed rate.
How a Variable Rate Mortgage Works
With a variable rate mortgage, your interest rate can change over time. This means that your monthly mortgage payment can also change.
Variable rate mortgages are tied to the Bank of Canada’s prime rate, which is the interest rate that banks charge their most creditworthy customers.
- If the Bank of Canada raises its prime rate, your variable rate mortgage will become more expensive.
- If the Bank of Canada lowers its prime rate, your mortgage payments will become more affordable.
Why Variable Interest Rates Are Currently Higher than Fixed Interest Rates
Variable interest rates are currently higher than fixed interest rates because the Bank of Canada has raised its prime rate 8 times over the past few years, often raising the rate by 50 to 75 basis points versus the usually 25 basis point jump.
See Huber Mortgage blog (Inflation, Price Gouging and the Bank of Canada) to understand why our rates are so high.
This has quickly led to higher variable interest rates for those with variable rate mortgages. Huber Mortgage has clients who opted for the variable when rates were below 2% who now are facing payments at 6%! We are working to inform all our clients of their payment options.
Fixed interest rates, on the other hand, are set for the term of your mortgage, meaning they do not fluctuate with changes to the prime rate.
How to Switch into a Competitive Fixed Rate
If you’re currently in a variable rate mortgage and you’re worried about rising interest rates, one idea would be to switch to a fixed rate.
While fixed rates are currently lower than variable rates, they may not stay that way forever.
By switching to a fixed rate, you’ll have the peace of mind of knowing exactly what your mortgage payments will be for the term of your mortgage.
You can also take advantage of the competitive fixed rates that are currently available in the market. Fixed rates are hovering around the 4.5%-5% range which sits around the historical average for mortgage rates. I sense that Canadians think we may be heading back down to 2% mortgage rates in the future.
Unlikely.
Much (taxpayer) money was spent by the government of Canada to keep those mortgage interest rates low and it is unlikely that the government will be able to conduct this level of market manipulation again in the future now that Canada’s collective federal and provincial debts total over $2 Trillion.
Rates in this range allow people to purchase a owner occupied home yet require folks to be responsible with their finances due to the higher rate. It also impedes the types of mortgage fuelled asset price speculation we have seen in Canada’s real estate market over the past decade. As well, owing rental properties is still very possible as outlined in a recent Huber Mortgage blog (5 Steps to Ensure Your Rental Property Makes Money)
Rates within the historical average are likely a safe bet going forward.
Potentially Consolidate Debt with a Mortgage Refinance
If you’re looking to consolidate high-interest debt, such as credit card debt, a mortgage refinance with a historical range fixed rate may be a good option.
By refinancing your mortgage, you can take out some of the equity in your home to pay off your high-interest debt.
You can also potentially lower your monthly mortgage payments by switching to a lower fixed interest rate.
Conclusions and Further Thoughts
In conclusion, a variable rate mortgage can offer flexibility, but it also comes with some uncertainty.
If you’re worried about rising interest rates, or your current payment is too high for comfort, it may be a good idea to switch to a fixed rate.
You can potentially save money by switching to a fixed rate and at the same time consolidate high-interest debt to further increase your monthly savings.
A mortgage professional like Huber Mortgage is here to determine which option is right for you, create a mortgage strategy that will help you pay off your mortgage faster and save you thousands of unnecessary interest costs throughout the life of your mortgage.
Contact us today – click here CONTACT
Sincerely,
Michael
PS – One of my hobbies is blogging about mortgages, debt and government policy. During the day I’m a MORTGAGE BROKER in Kelowna, BC!
Check out the Huber Mortgage Home Buyers Guide HERE
