What happens to your variable rate mortgage payment when the Prime rate changes? . Not all lenders have the same policy. Some lenders will lower your payment to match the rate reduction. While others will not make the change and keep payments the same. You should be clear on the answer to this question if you have a variable rate mortgage.
Consult with your independent mortgage broker to make an informed decision.
In this market where the Prime rate has dropped by 1.5% it is a good time to consider which option is best for you and ensure to update your preference via your online portal with the lender or contact them by phone to make any change.
Option 1 – Lower the payment with the new rate & lower to increase your cash flow.
For example if your variable rate mortgage rate was Prime minus .5% the savings each month per $100,000 mortgage would be $75. If you have a $400,000 mortgage that is $300.
Option 2 – Maintain the payment at the old rate & pay more towards principle.
For example if your variable mortgage rate was Prime minus .5% your old payment per $100,000 of mortgage would be $496 per month. Even in 12 months this increase in pay down of principle would reduce your cost of interest by almost 50%, increase your pay down of principle to $4000 and shave and additional 4 years in amortization! All in only 1 year.
Take a moment to consider your options with what happens to your variable rate mortgage payment when the Prime rate changes?
Consult with your professional independent mortgage broker first. We are here to help.