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5 Year Variable for Grande Prairie Mortgage Clients
The five year mortgage is the most popular mortgage term in Canada. However, most home owners have a fixed rate mortgage. Yet there are advantages to the variable mortgage. Let’s learn more about the 5-year variable mortgage product.
What Is a Five Year Variable Rate Mortgage?
In a fixed rate mortgage, the mortgage rate remains the same over the life of the term. With a variable rate mortgage, the interest rate will rise and fall with the Bank of Canada overnight lending rate.
A five year mortgage term is the most common loan term for Canadian home owners. Grande Prairie mortgage customers typically consider it an ideal balance between one and ten year loan terms. That is true whether they have a fixed or variable rate mortgage.
The five year variable rate mortgage is a combination of these two elements – a variable rate mortgage contract and the common five year loan term.
The 5-year variable mortgage rate defined
The five year variable rate mortgage is at its core determined by the overnight lending rate at the Bank of Canada. The variable mortgage rate will vary based on changes to this overnight lending rate, changing as the Bank of Canada adjusts interest rates as necessary to maintain healthy growth. If the economy is overheating, they’ll raise interest rates. Your house payment will often rise if you have a variable interest rate loan. If the economy is slowing down, you could benefit from a falling interest payment and lower house payment.
Variable rate mortgages are described based on their relationship to the prime rate. They will be described as a certain amount plus or minus the prime rate. A mortgage rate of prime – 0.5% will be 4.5% if the prime rate is 5%.
The mortgage term is not equal to the loan duration. A five year variable rate mortgage can be converted to a fixed rate mortgage without penalty at any time during the term.
The house payment may or may not change. For example, you can choose a variable rate mortgage with a fixed principal payment and variable interest rate portion. In this case, your amortization period is set but the house payment can vary month to month. Or you could have a fixed monthly house payment. As the interest rate portion of the loan changes, the principal payment will change, as well. You will pay more toward the loan balance when interest rates drop, but you’ll be paying on the home loan longer if interest rates go up.
How popular are 5-year variable mortgages?
We mentioned that two thirds of Grande Prairie mortgage holders have a fixed rate mortgage. Nearly 30 percent have a variable rate mortgage. Most of these are five year terms.The variable rate is perfect if you plan on selling as the penalty is 3 months interest anytime you sell rather then the inflated interest rate differential that comes with a fixed mortgage. Most people can not sell there home on the exact maturity date and if you sell it even a week early on a fixed term you will default to 3 months interest penalty, if you sell your home 1 or 2 years prior to the fixed term expiring you will have to pay a higher interest rate differential penalty compared to the variable which is 3 months interest anytime you sell, so complete transparency. If you’re concerned that mortgage interest rates may have hit a historic low, you could convert your mortgage to a fixed rate loan. Talk to Whalen Mortgages Grande Prairie your loyal and trusted Grande Prairie mortgage brokers to find a lender with the best rates.