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What is a variable-interest rate mortgage?
Unlike a fixed rate mortgage, a variable-interest rate floats and is tied to the bank prime rate. This floating is directly related to changes in the prime lending rate which is set by the bank of Canada. The mortgage payment amount can stay the same but the actual interest charged can change from month to month. A drop in the prime rate is great news if you have a variable rate mortgage because more of your mortgage payment will reduce your mortgage principle. However, if interest rates rise, less money will go towards the principle as more money will pay the interest. If you have a variable rate mortgage and are worried about rising interest rates most lenders will allow you to switch from a variable rate mortgage to a fixed rate mortgage with no penalty. |
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