Fixed Or Variable
A Variable Mortgage With Payments That Don’t Increase
May 4, 2015
When we ask our clients what their main reason is for not getting a variable mortgage the number one, most common answer is always the same:
I dont want to risk my mortgage payments increasing.
Well, what if we told you that you could get a variable mortgage that has a fixed payment which will never increase over time?
EXAMINING VARIABLE MORTGAGES AND WHERE THIS MISCONCEPTION CAME FROM
The truth is that many lenders offer a variable mortgage with payments that do not increase over time, no matter what happens to interest rates. In fact around one-third of lenders that we deal with offer this product.
Let’s take a look at why it is considered ‘variable’ even though your payment will never go up (or down). The reason comes down to the product name.
VARIABLE vs ADJUSTABLE RATE MORTGAGE (ARM)
The confusion around these 2 phrases sums up how much the mortgage world is full of confusing mortgage terms and jargon. What most people believe to be a ‘Variable’ is actually an ‘ARM’.
It is an ARM mortgage that increases when rates increase. The other type of variable mortgage (which is commonly called a ‘true variable’) does not.
WHY IS THIS STILL CALLED A VARIABLE IF THE PAYMENT DOESN’T GO UP (OR DOWN)?
That is the key question here. The easiest way to explain how this works is with an example.
Let’s say you have a variable mortgage and your monthly mortgage payment is $1000. And of this $1000, the portion going towards interest is $300 (therefore $700 goes towards the principal).
Now let’s say interest rates go up. And they go up enough so that you are paying $50 more in interest. Here’s how this would work under the 2 different types of mortgage:
ARM = your payment would increase by $50 to $1050. $700 continues to go towards the principal but you’re now paying $350 in interest.
True Variable = your payment stays at $1000, except now $350 of this goes towards interest and $650 towards the principal.
It is still a variable mortgage – the difference is that it is the amount going towards the principal that varies with interest rates, not the amount you pay. As you can see, this means you can take a variable mortgage with a fixed payment (a ‘True Variable’) and never have to worry about your payment increasing if rates go up.
HOW DO I GET A ‘TRUE VARIABLE’ MORTGAGE WHERE MY PAYMENT WILL NEVER GO UP?
As I mentioned, not every lender offers this. So work with a mortgage professional (it’s free for you!) to find out more about true variable mortgages. We would be happy to set you up with a lender offering a True Variable mortgage – so you can get the lowest rates out there (variable rates are always lower than fixed rates) but not have to worry about your payment increasing.
You can get free quotes from us (where we will show you a ‘True Variable’ as part of your quotes) in as quickly as 90 seconds at http://www.GTAMortgagePros.com/Apply-Now