The Rate Tango: Canada Mortgage Rates Variable vs Cibc Mortgage Rates Fixed

Become an expert on Canadian Mortgage Rates with our Handy Guide.

At the time of this writing the prime rate is 2.85%, and many first time home buyers are wondering whether they should take advantage of this low rate or if they should lock in the more secure fixed rate mortgages. Right now, the CIBC Mortgage Rates for a fixed mortgage vary between 2.89% for 1 year to over 6% for 10 years. This is a huge range of cibc mortgage rates and the banks usually do this as insurance against inflation. Should the prime rate rise, you would still be paying the original payment amount with one of these Canadian mortgage rates fixed mortgages. But say the prime rate doesn’t rise to 6% and stays closer to 2.85%. That means you would be paying over twice as much as prime! It’s a tough decision, which kind of mortgage should you choose? Read below for all the details on cibc fixed rate vs variable rate mortgages.  Canada mortgage Rates

First, what are variable and fixed rates anyways? Aleem from themortgagespecialist.com explains:

Fixed Rate Cibc Mortgage Rates

6 month, 1, 2 & 3 year (open and fixed) 4, 5, 7 & 10 year fixed. There is one lender that can even offer a 15, 18, and 25 year term. When you take out a Canada mortgage fixed-rate mortgage, your interest rate will not change throughout the entire term of your mortgage. As a result, you’ll always know exactly how much your payments will be and how much of your mortgage will be paid off at the end of your term.

All Canada fixed rate mortgages are closed term. A closed term means that penalties apply if you end the term early by pre-paying your mortgage,  be it that you won the lottery or that you are selling your home.

Canada Mortgage Rates -Variable Rate

Variable rate mortgages can have open or closed terms, for 3, 4 and 5 years. Most Canada mortgage rates variable rate mortgages can be locked into a fixed rate mortgage without penalty providing you lock in for at least the remainder of the term. With a Variable-rate mortgage, your rate will be set in relation to the prime rate and may vary from month to month. Historically, variable-rate mortgages have tended to cost less than fixed-rate  mortgages when interest rates are fairly stable. When the rates change, your payment may or may not change depending on the lender.

*it is important to note that the data over the last 20-25 years has shown that the variable rate mortgage holders have been ahead, but that was in a time where prime was steady or going down. With prime sitting at 2.85% right now, the likelihood of it being down trending is very low.*

But how much of a difference does the prime rate actually make?

An important question to ask when deciding between a Canada mortgage rates fixed or variable rate mortgage

Over the last 4 years, Canada mortgage rates have hovered around 3% and are expected to stay that way until at least 2016. However, rates are by their very nature highly volatile. Could you handle payments if the rate was to double? Many first time home buyers in Canada go for a fixed rate mortgage so they don’t have to worry about this happening if the Canada mortgage rates rise. If you are the type of person that would be kept awake at night over rate fluctuation, then even though you might be able to get the best mortgage rates with a variable rate mortgage, at this point it’s probably not the right choice for you. However, should you take a look at your finances and decide that you can handle a little risk, you may be able to take advantage of the historically low Canada mortgage rates being offered today. Think about it this way: imagine you get a mortgage at prime minus 0.25%. At a 3% prime rate you would be paying 2.75%, however if prime were to rise overthe next year to say 4%, then your mortgage would rise to 3.75%.

What makes the prime rate move?

The main influencer of the Prime Rate is the Overnight Lending rate set by the Bank of Canada. The Bank of Canada is Canada’s Central bank, the bank of the banks, including cibc mortgage rates. When the bank of canada moves the rate that they charge the banks to borrow money over night, the prime rate will most likely as well. Every year the Bank of Canada decides to keep, raise, or lower the overnight lending rate about 8 times at certain scheduled dates. If you have a variable rate mortgage, it’s a good idea to take note of these dates on your calendar.

I’ve heard I can “Lock In” my Variable Rate mortgage. Is this the best option?

Locking in your variable rate mortgage essentially means switching to a fixed-rate mortgage when rates start to rise, and can seem like a great option. However, there a few things to keep in mind when you consider locking in your rate.

  1. Does your mortgage lender allow you to lock in?

Not all mortgage lenders allow for locking in, so if this is an important feature to you, make, sure to ask your mortgage specialist if locking in is available.

 

  1. Is your mortgage lender using posted rates?

The rates banks post (online or in branch) will sometimes be less than their “inflated” posted rate. Meaning, they may offer a nice discount to new customers, but if you are looking to lock in your mortgage, you might not be able to get this discounted rate.

  1. Will you be locked in at the term you have remaining or your original term?

You’ve worked hard and just have 2 years to go on your 5 year mortgage. But when you decide to lock in your rate your bank tells you they can offer you the original rate of your 5 year term which is significantly higher than if you were paying a for a 2 year term. What? It is quite common in Canada to be locked in at the original term rates instead of your remaining term. Check and ask your mortgage provider if you are unsure what your option would be.

 

Still unsure? Contact Aleem at The Mortgage Specialist.

Aleem takes pride in helping his clients into the home of their dreams, and will help you find the right option based on things like your current financial situation, long term goals and outlook. After spending a career in not only as a mortgage specialist, but for the source of Mortgage News Canada, Aleem has gained unparalleled knowledge in the field. So whether you’re looking for a first time home buyer plan or you’re a seasoned pro, contact Aleem today.