(NC)-If you are not a market watcher, a variable rate mortgage may make you nervous. With this type of mortgage, the interest rate payable fluctuates with the prime lending rate. While a variable rate mortgage can save you money when you are financing your home purchase, you need to be comfortable with the associated risks.
As a general rule, variable rate mortgages offer lower interest rates than fixed term mortgages. In the long run, variable rate mortgages have proven to be a good bet to save money. This is especially true today, with prime lending rates still at low levels. More and more Canadians have been turning to variable rate mortgages to finance their home buying.
Some people may shy away from variable rate mortgages as their monthly payment amount may change. But with products like CIBC's Better Than Prime Mortgage™, your monthly payment amount will stay the same, even if the prime lending rate fluctuates. This will help you budget effectively and take advantage of lower rates.
There are three basic types of variable rate mortgages available on the market today:
1. Interest rate changes with prime or stays just below prime - these types of mortgages can be either closed (you are unable to switch to a fixed rate mortgage) or open (you can switch). If there is a discount on the prime rate, the mortgage is usually closed.
2. Interest rate is discounted and has a special introductory offer - this type of variable rate mortgage carries an introductory rate that is discounted from the prime lending rate for a specified length of time. After the introductory period, a smaller discount may apply for the remainder of the term. CIBC's Better Than Prime Mortgage, for example, offers an introductory rate of 1.01% below CIBC's prime for the first 9 months and 0.25% below CIBC's prime rate for the rest of the 5-year term (APR 3.88%)*. These types of mortgages are usually closed.
3. Interest rate fluctuates and is capped- this type of mortgage offers the security of a cap on the interest rate, which means that your interest rate will never rise above a certain level, often the 5-year fixed rate. The interest rate is usually higher than the prime lending rate, but this type of mortgage offers protection against rising interest rates. These mortgages are usually closed.
For more information about whether a variable rate mortgage is right for you, contact your local CIBC branch or call 1 800 465-CIBC (2422). You can also visit the CIBC website at www.cibc.com.
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* APR (Annual Percentage Rate) based on a new $120,000 mortgage, with a 5-year term and 25 years amortization, CIBC Prime Rate of 4.25% per annum, the rate on April 12, 2005.
