Within a fixed rate mortgage, you will have the security of knowing that your mortgage payment and interest rate will not change throughout the contractual term. In exchange for a fixed rate term, your lender will apply a higher pre-payment penalty should you decide to switch lenders, refinance, or reconstruct your mortgage before your mortgage term is up.

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A floating interest rate, also known as a variable rate or adjustable rate, refers to any loan that is not fully fixed, but rather shifts with any changes to the Bank of Canada’s overnight policy rate.

There are two types of variable rate products:

1. ARM – Adjustable-Rate Mortgage AND
2. VRM – Variable Rate Mortgage

When deciding on what variable rate product works best for you and your family, it’s best to ask yourself if you are more comfortable with a fixed monthly payment or paying your mortgage off on the agreed upon amortization. (See our variable rate mortgage section for more)

While both options are great products, not every lender will offer both. Depending on the lender, some will have a variable rate mortgage product, while others have an adjustable-rate mortgage product. Speak with one of our team members today to learn more about which product is best suited for you.

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When working with a lender that offers an ARM product, your payment is NOT static on the day of closing, meaning your ARM payment will change with any adjustments to the Bank of Canada’s overnight policy rate. This means your amortization will remain static and you will pay your mortgage off on time.

When the interest rate drops, your amortization drops. When the interest rate pops, your payment pops.

• When working with a lender that offers a VRM product, your payment will remain static on the day of closing, meaning your VRM payment will not change & only the principal & interest on the back end will fluctuate with any BoC change. This means your amortization will otherwise adjust accordingly.
• When the interest rate drops, your amortization drops. When the interest rate pops, your amortization pops.
• With some static variable rate mortgage products, there is a trigger rate and trigger point which will inflict an increase to your payment should your mortgage ever reach that point (see below for explanation).
• It’s also important to note that not every lender that offers a VRM product or has the trigger rate / trigger point policy.

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There are TWO main methods

• Accelerated Bi-Weekly Payments
• This will turn your 25-year mortgage into 21-years

Pre-Payment Privileges

This option allows you to pay a specified amount towards your mortgage each year without penalty. Usually 15% - 20% of the mortgage balance

Also, consider the Sweet 16 Method - Increase your mortgage payment by 5% year over year (x 1.05) & you’ll be mortgage FREE in 16 years instead of 25