Mortgage Moments: Fixed vs Variable Rate Mortgages

Matt Santagapita, Santa Knows Best Andrew Young, Mortgage Wise Financial and The Community Mortgage Movement

Andrew thanks for coming, and today we are going to talk the difference between fixed vs variable So Andrew what is the difference between a variable mortgage and a fixed-rate mortgage? As I go through with every single client, I love going over these options So fixed – very easy to explain – so you have a term, 1, 2, 3, 4, 5-year terms, generally Some lenders offer 7, some lenders offer a 10-year fixed term So you know what your payment's going to be, you know what your rate's going to be for whatever that term you set up

With variable rate there's a couple moving pieces with it Number one, the prime rate or the prime bank lending rate as they call it, is one portion and that's the portion that can move and get increased, it can decrease, depending on what the banks are doing or what the government sets in and if they want to make some changes Yep The fixed portion of the variable-rate, is your discount off of prime, or a premium on top of prime Okay

When I say premium on top of prime I'm more referring to a homeowner line of credit, where that's going to be prime plus generally 05%, something around that area Okay With the regular mortgages you're going to look at a prime minus so, anywhere between a – right now and the current rate environment prime minus 025% to prime minus 1% in some circumstances

When it comes to a fixed-rate mortgage, how is the rate determined? So banks and/or the lender buy pockets of money and then they have to make money off that money, So that's how the interest rates are created – so they have to make a spread on the money that they've purchased from big conglomerates, other banks, pooled funds So that's how the fixed rates are created Alright Andrew, so when it comes to a fixed-rate mortgage or variable-rate mortgage, how do the penalties differ between the two? Sure, with most fixed-rate mortgages – and I'm just going to speak generally because every single lender is different in the way that they calculate penalties, okay? So first and foremost, with the fixed-rate you're either going to run into a 3-month interest penalty or you're gonna run into something called an 'Interest Rate Differential' That's the one you really want to avoid There's also some low-rate basic mortgages that could charge you a certain percentage

So, 3% of the current balance if you were to break your mortgage So you need to be really sensitive about what sort of penalties – and my job isn't just to get you into a mortgage, it's to make sure you understand what it takes if you need to get out of the mortgage Makes sense, 3% can be pretty hefty 3% can be a big penalty That's a lot of hamburgers [Matt]: Yeah [Andrew]: Yeah So on the other side, variable-rate with most lenders it's a 3-month interest penalty So with the fixed-rates, there's a little bit of a variance there because it could be 3-month which is good or an Interest Rate Differential, which is bad-bad not-good, And with the variable-rate mortgage you're looking at a 3-month interest penalty for most lenders, and there's also that low rate basic where you can get into a 3% penalty with the variable rate as well

So bottom line is, know what you signed up for So if you're looking to break your mortgage you better do your homework Absolutely, yeah

beforehand because otherwise, I mean like, we're talking thousands there It could be 10's of thousands

It could be some pretty serious, serious cash, wow Yeah, so know your stuff It's Matt Santagapita, Santa Knows Best Andrew Young, from Mortgage Wise Financial and The Community Mortgage Movement Fixed vs Variable

Source: Youtube

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