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(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 MortgageT, 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:
- 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.
- 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.
- 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.
T Trademark of CIBC.
* 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.
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