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<h3>Fixed vs Variable Rates</h3>
<p>Fixed rates do not change during a term. If it is a 5 year term, the rate stays the same for the entire 5 years. This provides the security of knowing exactly what your payments will be 4 years from now. Regardless of whether rates go up or down, your rate remains fixed and will not change.</p>
<p>Rates that are not fixed are either VARIABLE or ADJUSTABLE.</p>
<h4>Adjustable</h4>
<p>Adjustable rates are pegged to a floating rate, usually the prime rate used by the major banks. As the prime rate goes up or down, the adjustable rate does also, perhaps with a monthly or quarterly adjustment. Adjustable Rate Mortgages are also referred to as ARMs. Payments withdrawn from your account varies from payment to payment. You should receive regular updates from the lender advising you of changes to your rate. Most ARMs have a built in provision or option where you can convert your mortgage to a fixed rate mortgage, any time, at no extra cost.</p>
<p>Rates may be stated in terms such as "Prime Minus 0.1%" or "Prime Minus 0.5%". A client may have a CMHC surcharge to pay with this kind of rate.</p>
<h4>Variable</h4>
<p>Variable rates are also pegged to a floating rate, but the payments are fixed. The adjustment happens internally, dictating how much of your payment goes towards principal and how much goes towards interest. As this type of payment does not require the same ongoing maintenance, there is no surcharge for them from CMHC. Again, the rate can be based on prime or a particular fixed rate posted regularly by that lender.</p>
<p>Some lenders have a "capped" variable rate product which gives you the best of both worlds. Even if interest rates rise sharply, you are guaranteed they will not surpass the maximum rate set out in your mortgage.</p>
<p>Studies have shown repeatedly, that there is an advantage to staying with an adjustable or variable rate as opposed to a fixed one. It's an option that deserves serious consideration by every homeowner or perspective home owner. This option has REAL POWER because it gives you the opportunity to put twice or even three times what you would usually pay against your principal each month the prime rate remains low.</p>
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