3 Year Variable Mortgage

How To Choose The Best 3-Year Variable Mortgage That Is Right For You

In Canada, fixed-rate mortgages have been the most popular kind of mortgage. Although the fixed-rate mortgage is more popular, it isn’t because it saves you the most money. Rather, it’s because of its security and regular payments than fixed-rate mortgages are so widely used. When market rates rise, variable rates may be riskier, but they can often save you money over time – unlike fixed rates. 

Whether you’re a first-time homeowner or considering a mortgage renewal if you plan to sell or relocate soon, the 3-year variable mortgage maybe your best option. The 3-year variable mortgage rates have been at their lowest in over ten years, making now an excellent time to buy! Knowing all of the benefits and drawbacks that come with a 3-year variable rate mortgage would be beneficial in determining if it is the right loan for you.

What Is A 3 Year Variable Mortgage Rate?

Variable mortgage rates are also known as adjustable mortgage rates. When taking out a 3-year variable mortgage, your lender will offer you an interest rate that varies according to the Prime Lending Rate. The “floating-rate mortgage” is a term that refers to interest rates on variable mortgage loans, which are set by the prime rate and change according to market conditions.

How Does A 3 Year Variable Mortgage Rate Work?

A three-year variable mortgage rate has a term of three years. After the three-year term is up, you can either refinance or renew into another variable rate or enter into a fixed rate depending on current interest rates and what will work best for you at that time. Keep in mind that if you terminate your three-year variable mortgage rate contract early, you may be subject to a penalty fee. 

Each lender determines the penalty fee amount in the mortgage contract. There are two types of variable mortgage rates. The change in the prime rate will have an impact on your monthly payment, depending on the sort of floating mortgage rate your lender offers you.

There Are Two Types Of Variable Mortgage Rates

When deciding on a 3-year variable rate mortgage your lender may offer you two kinds of variable mortgage rates to choose from. Here are the available floating rates:

A regular variable rate mortgage (VRM)

This has a payment that is constant throughout the entire term. As the prime rate fluctuates, so does the proportion of principal you pay down with each payment.

An adjustable-rate mortgage (ARM)

This features a payment that varies in response to changes in the prime rate.

Benefits Of A 3 Year Variable Mortgage Rate

While 3-year variable mortgage rates are less popular than 5-year variable mortgage rates, they provide homeowners a variety of benefits. If you want to refinance your mortgage and avoid paying a prepayment penalty, you’ll probably save money by taking a 3 year variable rate. 

A 3 year variable mortgage rate can provide a considerable benefit to house-buyers who do not intend to live in their property for more than three years. Because it avoids the danger of having to terminate a longer-term loan early. The 3 year variable can sometimes save borrowers money by lowering their interest cost compared to a 5 year term. 

Rates on 3 year variable rate mortgages have dropped to 0.95 percent in recent years, making them one of the cheapest forms of debt available for homeowners.

Drawbacks Of A 3 Year Variable Mortgage Rate

There are a few drawbacks to consider before signing up for a three-year variable mortgage. If prime lending rates rise, you may be liable to pay considerably higher interest charges. It’s more difficult to qualify if your debt ratio is greater than the average. 

You’ll have to meet the Bank of Canada’s 5-year benchmark rate if you have less than 20% equity in the property. Finally, when interest rates on variable rate loans rise, it takes longer to pay off your principle amount since a greater proportion of each month’s payments goes toward interest on variable rate mortgages.

Is A 3 Year Variable Rate Mortgage My Best Option?

It might be hard to determine whether a 3 year variable mortgage rate is the best option for you. They are a great option if you anticipate breaking your mortgage within three years, a 3-year term is ideal. If you pick a 3-year term instead of a 5-year term, you may save a lot of money in penalty costs. A 3-year variable could be the answer for those who want more leeway to refinance their mortgage early without paying an expensive penalty. Another thing to think about when selecting a mortgage is the connection between the rate and prime: If you anticipate prime rates will get better in the near future, committing to a three-year over a five-year mortgage rate makes sense. Even if you get a fixed rate mortgage, you may save money by choosing a variable mortgage rate. Variable rates have been shown to be less expensive than fixed rates in recent years, especially during falling interest rate periods.

The Bottom Line

With so many different mortgage rates and terms to choose from, determining which one is best for your financial situation may be difficult. A 3-year variable mortgage rate might be worth considering if flexibility is important to you. The finest 3-year variable rate is one that minimizes your borrowing costs. It could be a rate that’s slightly higher than a comparable 5-year variable rate. If you want to get out of debt as quickly as possible while minimizing your risk of paying prepayment penalties, this may be a superior option. It’s beneficial to get the lowest interest rates, but it’s more important to get the lowest total borrowing cost when selecting a three-year variable mortgage rate. Consider a term that is suitable for your financial requirements, goals, and potential plans to expand your home. You’ll get the most savings by comparing rates.

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