Alberta Mortgage Rates
In reality, mortgages are one of the most basic financial instruments you will encounter, and this is a good thing, considering it also one of the most important financial products you will require in your lifetime.
As you research different mortgage products, you will come across such descriptions as 3 Year Variable Closed, 6 Month Convertible, 5 Year Fixed Closed, Open HELOC, etc. An extensive list - but in reality most Canadians stick to 5 year Fixed Closed Terms or 5 year Variable Closed Terms. And we’ll tell you why!
But first some basic definitions:
Fixed Rate
This rate is fixed and guaranteed for the period of the term. A 5 year fixed rate mortgage of 4% means that your 4% rate remains constant for 5 years then the rate expires. Fixed rates are determined largely by the bond market. Bond prices, and subsequently your mortgage rate, are determined by, but not limited to, the national inflation rate, the stage of economic cycle, government deficit spending, etc.
Fact: How much you pay for a mortgage rate could be influenced by the public spending of another country or group of countries. In 2012 the effects of the Euro Crisis helped to lower mortgage rates in Canada as international bond investors flocked to purchase CMHC mortgage backed securities. However quite the opposite can happen to Canadian rates when investors flee our market, as evidenced by the 1980 and 1990 recessions!
Variable/Adjustable Rate/VIRM/ARM
These products go by many names but all that you need to know is that the rate is cheap but not guaranteed. In fact, it can fluctuate monthly for the period of the term. Rates such as these are based on the Bank of Canada Prime rate, and your mortgage variable rate may be higher or lower then Prime depending if it’s an open or closed term. For example, if Prime is 3.00% and a 5 year Variable is Prime - 0.20% then your rate is 2.80%.
Fact: Variable rate mortgages and Fixed rate mortgages are roughly correlated but move independently of each other. When CBC News reports that the bank of Canada has increased prime lending by 0.50%, that means every one with a variable mortgage in Alberta is now paying 0.50% more on their mortgage. And vise versa on a decrease. This is not the same for fixed mortgage rates.
Closed Term
You are obligated to keep you mortgage with the lender for the period of the term. If you payoff the mortgage early then you are subject to an interest charge. This may not apply if you are moving (porting) the mortgage to a new home.
Fact: Mortgage lenders and banks calculate the interest charges for early payout a closed mortgage very differently. Rule of thumb is if your closed mortgage rate is below the current interest rate for the same term remaining on your mortgage, then 3 months interest penalty is applied. If you rate is above current rates and you are looking for a lower rate - call us first! You are subject to an interest rate differential (IRD) penalty and this cost can be in the ten’s of thousands of dollars.
Open Term
This is really straight forward- you may payoff your mortgage balance at anytime, no penalty. If you have a Variable Open Term mortgage keep in mind some banks charge an admin fee for early payoff.
Factoid: If you close out your TD Canada Trust Open VIRM, the branch will charge you $500. Other banks do this too, however they may waive the fee or reduce the fee based on the number of years you had the Open VIRM.
Phone: 587.409.5928