| Hey Guys! Banks are stunned when Mortgage brokers talk about a couple sensitive topics: 1. Mortgage payout penalties. 2. Adjustable vs. variable rate Mortgages. Your email today is about adjustable vs. variable rate Mortgages. Why? Because they’re not the same product, and banks don’t like you knowing the difference! With 10+ years in this industry now, I’ve seen how these two different Mortgage products play out over time. Continue with me to make sure you, or anyone of your people, learn what you’re about to read … |
| FACE OFF: Adjustable Vs. Variable Rate Mortgages |
Since we’re at the onset of an interest rate hiking cycle, I thought outlining the major differences between a variable rate Mortgage versus an adjustable rate Mortgage would be valuable for you. Let’s cover off:The basics of a floating Mortgage. Adjustable rate Mortgage. Variable rate Mortgage. What lender offers what product? |
| The Basics Of A Floating Mortgage. |
To be clear, I’m referring to closed floating Mortgages …floating Mortgage products that are associated with a term and amortization. I am not referring to home equity lines of credit (HELOC). Floating Mortgages are linked to the Prime rate. The Prime rate is linked to the Bank of Canada’s key overnight lending rate (also referred to as the key policy rate or central rate etc). When the Bank of Canada raised the key policy rate from 0.25% up to 0.50%, this raised the Prime rate from 2.45% up to 2.70%. These rates typically move in lockstep with each other. Floating Mortgage products have an association to the Prime rate, which is typically discounted. For example, a floating Mortgage rate might be Prime minus 1.00% (P – 1%). This relationship to the Prime rate is locked in for the term of the clients Mortgage (e.g., 5 years). Logical enough? Let’s continue … |
| Adjustable Rate Mortgages. |
When I take on an adjustable rate Mortgage, I do so with a set amortization. Amortization is the total amount of time it takes to repay the entire Mortgage (e.g., 25 years or 30 years etc). NOTE: when the Prime rate increases, my adjustable rate Mortgage payment adjusts higher. This retains my original amortization schedule. (no numbered examples as I’m trying to keep you awake here :-)) What about variable rate Mortgages …?? |
| Variable Rate Mortgages |
When I take on a variable rate Mortgage, I also start with a set amortization. As you’ll see, things can change … NOTE: when the Prime rate increases, my variable rate Mortgage payment stays the same. More of my same payment goes to interest with less going to principle. In this case, my amortization increases.In an increasing interest rate environment, I pay less principal off my Mortgage and more interest to the bank. Who do you think that benefits? |
| What Lender Offers What Product? |
I think what you’re wanting to know is, what lenders offer the variable rate Mortgage (VRM) product? If this is news to you, and you find out you have a VRM, reply to this email right away. I don’t think you’re being well advised and I can help with that. Variable Rate Mortgage Banks: RBC, CIBC, BMO, CIBC, National, ATB, TD. If you don’t see your lender here, reply to this email. I’ll find out for you. |
| Conclusion. |
I hope you found this content relevant and valuable. If so, let me know. Better yet, share this email with one of your people. Do you have any Real Estate or Mortgage needs? If so, reply to this email so you get no B.S. Mortgage advice. Thanks for reading, Chad Moore P.S. I finally got Omicron. I’m OK. For me, this was a mild head cold that I’m very grateful to be recovering from. What’s sucks is I’ve lost my taste! P.P.S. Connect with me on LinkedIn below. I’m writing content that I find interesting there. |
