As you know, variable rate mortgages, lines of credit and/or student loans are all based on the Prime Rate. Many of you might be asking should I lock in my variable rate mortgage?This is not an easy question to answer. Why? Because, just like when purchasing a property, everyone’s own personal situation is different.
Here are 3 main points to consider before you jump to action:
1. Your current variable interest rate
2. Your future goals and housing/mortgage plans, and
3. Your potential new fixed rate
Let’s explore these in more detail...
“I was wondering how the process usually goes, for looking at a new place. We had planned to use our equity in this home as the down payment for a new place. But if we can’t unlock that equity until the closing date, what usually happens in the interim? Do we have to find a place to rent?…a month or longer? When we bought this place, it was our first home purchase, so moving to a new one is new to us. I don’t understand how we are supposed to start looking for a place after subject removal (which is 30 days after tomorrow), when we can’t access the equity to make a down payment.”
Interest rates are only one of many features that should be looked at when you are applying for a mortgage. But all things being equal, the interest rate may be more important than you think.
I was reviewing mortgage options with a client and the only thing they were interested in was the mortgage rate. There was no concern about all the other conditions that could end up being quite costly and since I could only offer him what he considered a small reduction, the client said “the bank’s rate was only a little higher and I feel more comfortable leaving everything I have with my bank for such a small difference.”
What was the difference? I will get to that in a minute.
In general, most lenders will offer the borrower the option to decide which repayment schedule fits best with their lifestyle. The options include monthly, semi-monthly, bi-weekly, accelerated bi-weekly, weekly and accelerated weekly payments. Let’s use some simple math to determine which payment frequency will assist you in paying back your mortgage
The great majority of us are in mortgage contracts that contain a prepayment privilege of some sort. “Privilege” being the key word here. Not all mortgage contracts contain such privileges, but that’s a story for another day.
The mortgages that do allow prepayment privileges, usually allow at least 15% of your mortgage to be paid down, interest and penalty free, each year. On a $300,000 mortgage, that is $45,000 that you’re able to put directly towards
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