If it is a 5 year term, you will be paying the same amount
each month for 60 months. If rates increase or
decrease during this time period, the changes will not
With a variable rate,
if interest rates go up,
goes up. No longer do you have the comfort of knowing what
your rate will be, as in a fixed mortgage.
example, if you have a $125,000 mortgage, the
payment over 25 years at a rate
Prime less a half (currently 3%) would be $559.96 per
month. Not bad! However, if the prime rate goes up to
7.25% your payment raises to $856.31. Now, if your first
reaction is where will I come up with the extra $300, a
variable rate mortgage may not be for you.
You have to decide if you are a risk taker or not.
If you are going to lie awake at night worrying about
interest rates, then a fixed rate mortgage is probably the
best for you. Or if you are going to take on a
variable rate, it should only be for a short term such as
6 months or one year.
On the flip side, if you look at
these numbers and say that you would be quite comfortable
with the higher payment, there can be a big advantage in
taking the variable and setting payments at the higher amount.
So if you make payments of $859, and you only owe
$559 in interest, you will be reducing the principal of
your mortgage every month
The extra $300 per month reduces your
mortgage balance and saves you considerably over the life
of your mortgage. Also, if rates go up you do not have to
increase your payment and thus your personal budget is not
If you want to find the best mortgage rate, fill in our "1
minute" application. No matter
what your credit rating is like, Bob Buckham will do his
best to get you a mortgage. Some situations may be
very tough, but his success rate with
"hard-to-fund" cases is remarkable.