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Variable Rate Mortgage:
Definition & How it Works

 

If you prefer flexibility in your mortgage rate, a variable rate mortgage or VRM is exactly what you are looking for.  

From time to time a variable rate mortgage will save you money and free up cash flow which allows you the ability to put money back into your home, your future.

Today we take a closer look at a variable rate mortgage definition, how a VRM works, along with who might benefit the most from this type of housing loan.


person thinking about shopping for rates

Mortgage Broker Rate

What You Should Know Before Shopping Around

 

 

Approximately 10% of your credit score comes from company inquiries. This is an important fact to consider when rate shopping.

The main reason is that a borrower with many recent credit inquiries may be perceived to be a higher risk by lenders.

If multiple applications are filed and denied, the prospective borrower is in danger of further damaging their credit score.

If there is an approval after several lenders carry out a credit inquiry, the approved mortgage carries an increased risk of higher mortgage broker fees and interest rate.


fish jumping from one bowl to another

Changing Lenders? How to Calculate Mortgage Penalty Accurately

 

When it comes to mortgage terms there is often confusion and a lack of clear standards when calculating a lender-switch penalty.

Aside from the three months interest penalty, lenders can charge a mortgage penalty based on something called the interest rate differential (IRD).

The IRD is the difference between interest rate of an existing mortgage and a comparable rate that the lender could earn elsewhere in a similar time frame. The IRD is composed of several variables:

  • Mortgage amount outstanding
  • Time left on mortgage
  • Existing mortgage rate
  • Mortgage rate discounts, if any
  • Lender comparison rate

 


screenshot of mortgage amortization schedule

Free Excel Mortgage Amortization Schedule

 

Mortgage amortization schedules are important for clear communication between lenders, borrowers and interested third parties, such as tax authorities.

A free excel tool mentioned below helps interested readers make sense and experiment with mortgage amortization schedules and borrower payment plans.


declining interest rate image

Overnight Rate: What it is and why it should matter to you!

 

What is the “overnight” interest rate?

The Bank of Canada (BOC) carries out monetary policy by influencing short-term interest rates.

By raising and lowering the target for the ‘overnight’ rate they are able to do this.

Financial institutions borrow and lend between each other, doing so they charge interest on funds exchanged, this is called the “overnight” rate.

The BOC sets the target for this rate and is often referred to the Bank’s key interest rate.

Changes in this rate can influence other interest rates: consumer loans,mortgages,international exchange rate, etc. Therefore, we watch them closely.


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47,999 Reasons To Use Your Mortgage Prepayment Privileges

 

OK, I admit the title is a little misleading. We’re obviously not talking about forty seven thousand different reasons,  just one – BIG SAVINGS!

Often when I meet with a client and go over the terms of their mortgage approval I can see the excitement building. When I show them prepayment privileges we’ve structured, their eyes get even bigger knowing they can own their home sooner, with less interest. Paying off their mortgage is often their goal and owning their home sooner a dream to come true.

Then as time goes on those privileges are forgotten and clients continue to pay interest for 25 years and some cases longer if a refinance here and there pops up.


red dice percentage 2

Are You Putting Your Credit At Risk Playing The Rates Game?

 

Did you know that approximately 10% of your credit score comes from company inquiries. Why is this important when rate shopping?

Picture this. You decide to buy a new home and start shopping for the best rate. You have a strong A+ application:

  • great income;
  • few debts;
  • many assets;
  • large down payment;
  • and pristine credit history.

fixed rate versus variable rate mortgages featured

Fixed Rate Versus Variable Rate Mortgages

 

The decision of whether to opt for a fixed rate mortgage or a variable rate mortgage can easily be answered by one question: how much risk are you willing to take?

Anyone who is new to all these terms may find it quite confusing, however, the long and short of getting the right mortgage interest program can be determined by how much variability in the interest rates you can handle.

There are also secondary factors that will likely affect your decision regarding mortgage interest rates.

Let’s first begin by defining a fixed rate mortgage and a variable rate mortgage to better understand which of these programs is the better option for you.