With a drop in the prime lending rate by your bank you may wonder how does the change to the prime lending rate affect your mortgage payment? Well the answer is “it depends” on your lender policy. The rate change although announced last week didn’t take effect until after Feb 1st for some mortgage holders and in some cases will not take affect till later in the month for new buyers. So it is important to check in with your lender to see when you will see the lower rate.
For existing home owners with a line of credit the change is simple, your cost of interest drops. When you make a payment more of that payment will go to principal pay down. If you are making interest only payments your payment is now lower. If you have a variable rate mortgage and you make regular payments each week, bi-weekly or monthly once the rate shifts you will see your payment drop. If you have set it up to increase your payments by $50 your increase will apply against the new payment once the rate is adjusted. If you want to take advantage of the lower interest and maintain your same payments—applying more money to principal pay down you should contact your lender to make arrangements. Don’t assume this will happen automatically. It may be worth the call to ensure you gain from the lower rate. That small shift can add up. For example, the difference from 3.00% to 2.85% on a $100,000 mortgage is $8.00 per month. If that additional $8.00 goes against the principal you will shave 7 months off the amortization on your mortgage without really doing anything. It is that simple. So call your mortgage broker to check in and do a review of your mortgage before you call your lender to look at all your options. You will be glad you did.