Variable rate discounts are currently the best they’ve ever been. For a bit of background, variable rates are based off the prime lending rates, which are set by the various banking institutions (and these rates are based off the Bank of Canada’s overnight rate). Typically, when you have a variable rate mortgage, you’ll have a discount off the prime rate. That said, it’s possible for there to be a surplus or no discount at all – it’s all dependant on rate spreads, economic conditions, and overall banking competition.
With today’s steep discounts, there is a potential opportunity to switch your variable mortgage in favour of a better rate to save on interest. The calculation simply compares the early discharge penalty to the interest savings between the two rates. If you can make the penalty back before your term matures, it’s a no-brainer. If not, stay put. The following two factors will determine whether or not this is a suitable option for you. Moreover, fill out the form in the bottom fill out the form to the right and we’ll run your specific numbers and advise you accordingly.
Current Variable Rate Discount
On average, the current discount is 1% below the prime rate (in our world known as prime minus 1). If your discount is inferior to this and there’s enough time remaining in your current term, there will be an opportunity for you to save money.
If your mortgage is maturing, it may or may not make sense. If your renewal date is within 120 days, you can hold a rate, which puts you in an enviable position. However, if you have slightly longer remaining, you need to evaluate the likelihood that these steep discounts will stick around until your maturity and make an educated decision. This will depend on your specific property goals and borrowing needs at the time.
What Should You Do Now?
Basically, there’s a massive opportunity for a lot of people with mediocre discounts and it all comes down to math and your personal plans. Fill in the form and we’ll do a quick consult and advise you on your options and whether or not switching your variable rate mortgage is a suitable option at this point in time.