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Family Lending provides online mortgage solutions with access to lenders across Canada. All applications are welcomed by our knowledgeable and friendly staff. Family Lending's professionals are there guiding you step by step.
We have competitive rates and a quick, easy process. Learn more in our Mortgage Centre.
Variable Rate Mortgages
The greatest difference between VRMs and fixed rate mortgages is how the rates are set. VRM rates are set based on the Bank of Canada rate. The chartered banks add a slight premium to the Bank Rate to establish the Prime Rate. This is what most lenders use to price their various VRM products.
In our system, the Bank of Canada uses its bank rate to control inflation in the economy. When little or no inflation is present, as is the case right now, this rate tends to be set at very low levels and is relatively stable. The fixed rates, on the other hand, are set based on the yield in the bond market. The bond yields are very volatile and tend to fluctuate, often due to political and economic conditions. This volatility makes it impossible to gauge what fixed rates will do, even in the short-term.
There are three main components to a VRM product that consumers should be aware of.
- Ongoing "prime minus" feature.
- The opening or "teaser" rate.
- Lock-in feature of each mortgage company.
Currently,
there are more
than 15
different and
distinct
Variable rate
mortgage
products in
the market
place. All of
this choice
generally
leads to
confusion
among most
prospective
clients. Quite
often it
becomes
difficult to
distinguish
between
products. But
like all
products only,
one or two
products are
usually better
suited to fit
your needs
than the rest.
The first
component of
the mortgage,
what we refer
to as the
"prime minus"
feature,
follows this
simple
definition.
"The discount
below the
banks prime
lending rate
which a
mortgage
client is
charged on an
on-going
basis."
For example,
if the bank's
prime lending
rate is 5.00%,
bankers will
vary their
discounts from
prime minus
.25% (4.75%),
to prime minus
.50% (4.50%).
Every banker
is different,
but
mathematics
leads us to
the correct
solution. A
quarter point
(.25%)
difference
over a
five-year term
can certainly
make a big
difference!
The second
component, the
"teaser rate",
is the
interest rate
charged for
the first
three to nine
months. This
rate is
intended to
lead a client
or persuade a
client to
choose a
particular
banks product.
A good rule of
thumb to
follow is that
if the teaser
rate is low
(1.9% to 4.9%)
it may be
likely the on
going rate may
not be as
competitive in
the market
place.
The last
component to
ask yourself
is simply this
"down the
road, if I
want to lock
in to a fixed
3,5, or 10
year term,
what rate
discount will
I receive?"
One of the
most popular
features of
the Variable
rate mortgage
is that at any
time, a client
is able to
lock in their
mortgage to a
fixed term.
Some banks
will not fully
discount the
interest rate
at lock in
time.
In many
respects, this
mortgage
appears
complicated.
With our
assistance you
can navigate
your way
through the
maze and
ensure that
you receive
the BEST
product
available to
suit your
needs. After
all, a VRM is
still one of
the best
products
available to
help you pay
your mortgage
off faster.
It's worth the
effort to find
out more.
