How exactly do my variable rate mortgage payments work?

If you have a variable rate mortgage, it’s important to note that some lenders change mortgage payments when prime fluctuates while others don’t.

For example, when the Bank of Canada raised the prime rate in March, some lenders reflected the new rate by increasing the required mortgage payments.   These lenders sent out a notification that their rate was increasing and when the new payment would take effect.

However, other lenders do not modify payments when prime increases/decreases. These lenders keep payments the same until the interest portion is MORE than the standard principal plus interest payment.  This can trigger an event, where the lender will contact you and let you know there is an issue and ask for you to increase your payments or make a lump sum payment.  One way to avoid this, is to increase your payments in advance to mirror a higher interest rate thus reducing the stress of future payment hikes.  All of our lenders offer prepayment options where you can increase your payments by at least 15% to avoid any issues.

If you aren’t sure how your lender deals with variable rate mortgage payments, you can always contact them directly or send us a quick email and we will do our best to assist you.

As always, we are here to help!