Variable rate mortgage – how payments will change for the new rate

We are getting many calls on this so here is how it works for MOST of the banks.

The Bank of Canada (BofC) reduced their Prime rate by 1/4 % or .25% last week to 0.75% from 1% where it has been for about 3 years.

The banks took a while to decide ifthey were going to lower their rates as well. 3 times before the banks have either not passed on the entire rate reduction to customers or not moved at all and kep the savings to themselves.

Now that most banks have lowered their rate by .15% this is how payments are impacted:

a.    If they have an Adjustable Rate Mortgage – ARM mortgage – then the rate will be the new rate starting on the “effective date.”
b.    The payment after the next payment will change to reflect this new rate. (So if you pay monthly on the 1st, the Feb 1st payment will be your current payment, but the March 1st Payment will be the new payment, If you pay weekly every Friday, this Friday will be the same payment but the next Friday will be the new payment)
c.    Because the rate has gone down, your payment will decrease.
d.    Because the interest rate has gone down, the next payment that is still at your existing payment amount will apply a little more to your principal.
e.    Customer will receive a letter with their new payment amounts in the snail-mail.

Hope that clears things up a bit.

Call if you have questions.

Mark Herman, Top Calgary Alberta Mortgage Broker.