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What is a Variable Rate Mortgage?
A variable rate mortgage is a type of home loan where the interest rate can change over time, based on market conditions and your lender's prime rate. With a variable rate mortgage, mortgage payments are set for the term, even though interest rates may fluctuate during that time. If interest rates go down, more of the payment is applied to reduce the principal; if rates go up, more of the payment is applied to payment of interest. Variable rate mortgages may be open or closed. A variable rate mortgage provides you with the flexibility to take advantage of falling interest rates and to convert to a fixed rate mortgage at any time.
A Variable Rate Mortgage Could Save you Thousands of Dollars in Interest Costs
With an RBC Royal Bank Variable Rate Mortgage, your payment amount stays fixed for the term; however, the interest rate will fluctuate with any changes in our prime interest rate. If our prime rate goes down, more of your payment will go towards paying off your principal; if our prime rate goes up, more of your payment will go towards interest costs.
Our Variable Rate Mortgage is Convertible
A convertible mortgage can be converted to another term at any time. This feature provides you with security and flexibility, as it enables you to convert to a longer closed term should your variable rate mortgage no longer meet your needs.
Competitive Interest Rates
Variable rate mortgages typically offer a lower interest rate than fixed rate mortgages. As interest rates decline, you could pay off your mortgage faster and save money on reduced interest costs.
Fixed Payments for the Mortgage Term
Your monthly payment remains fixed even if interest rates rise, as long as the amount is sufficient to cover the interest cost.
Payment Options
When you first set up your mortgage, you can choose from several payment options, including monthly, semi-monthly, bi-weekly, weekly, accelerated bi-weekly and accelerated weekly payments.
At RBC Royal Bank, you can select an amortization period between 5 and 30 years. This is the length of time it will take to pay off your mortgage if the interest rate does not change.
You can also reduce the number of years it takes to pay off your mortgage and enjoy substantial savings by:
If you ever need to free up cash for another purpose, you can also skip a mortgage payment once every 12 months:
Renewing Your Variable Rate Mortgage
Renewal time is a great opportunity to review your financial situation, and our goal is to make sure you choose the right mortgage options for your circumstances. When you're renewing a variable rate mortgage during a time of rising interest rates, there may be some additional options you'll want to consider to help reduce your principal balance and lower the impact of a higher payment at renewal. Watch the video below to discover steps you can take now to help lower your future mortgage payment and manage your cash flow.
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Renewing Your Variable Rate Mortgage
In this video we're going to talk about what happens to your mortgage payments when you renew your variable rate mortgage during a time when interest rates are rising. And, we'll cover some of the options you have for managing those payments.
First, let's talk about what happens when you renew your mortgage. Your mortgage comes up for renewal when your mortgage term ends. The term refers to how long your rate is set for. Amortization, which is another part of your mortgage, is the total length of time it takes to pay off your mortgage in full.
Say you originally chose a 5 year term and 25 year amortization. When your mortgage first comes up for renewal at the end of 5 years, there would be 20 years left on the amortization. At renewal, you will choose a new term at mortgage rates available at that time. This term, along with your new rate, mortgage balance and remaining amortization are all used to calculate your new payment amount. Now, if your mortgage is coming up for renewal in a rising interest rate environment, your new mortgage payment could be higher than what you pay now. How much higher will depend on a few factors but some of the key ones include: Your current mortgage type - whether it is fixed or variable. And your new interest rate.
If you have a variable rate mortgage, your interest rate may have already increased during your term. As a result, during at least some of the term, more of your payment would have been applied to cover your interest and less to paying down the principal. This means your principal balance is being paid down at a slower pace than it otherwise would have been had interest rates not changed. Consequently, your principal balance at the time of renewal will be higher than it would have been had interest rates stayed the same. Let's say your variable interest rate increased from 2% to 4% in year 4 and 5 of your mortgage, which means that more of your payment has gone to paying the interest versus paying down your principal over these years. At the time of renewal, the interest rate rises further to 5%. If you started with a $478,000 mortgage with 25 year amortization, your remaining principal after 5 years would be $17,348 higher than if the rates didn't change during the term. And, your monthly payment would increase from $2,026 to $2,758 upon renewal.
Nobody likes to see payments increase. Fortunately, there are a few steps you can take to help lower your payment before it's time to renew. You can make a lump sum payment; you can Double Up your payments; or you can increase your regular mortgage payment. Any of these actions can help reduce your principal balance and help lower the impact of a higher payment at renewal. In addition to these options, there may be other ways to manage your mortgage payments, depending on your personal circumstances. Some clients may be eligible to increase their amortization to help lower the payment amount.
We can help you take steps to manage your cash flow and your mortgage. Talk to an RBC advisor today!
Variable Rate Mortgage - Current Rates and Terms
Below are some of our current special and posted rates for open and closed variable rate mortgages:
| Term | Rate | APR |
|---|---|---|
| 5-year closed term special offer2 | RBC Prime Rate % (3.950%) | % APR |
| 5-year open term posted rate1 | RBC Prime Rate + % | % APR |
| Today's Royal Bank of Canada prime rate | % |
HomeProtector Mortgage Insurance
It allows you to not only safeguard yourself and your family's lifestyle, but also your assets and net worth.
1) Interest rate is compounded monthly, not in advance. This rate may change at any time without notice. Royal Bank of Canada prime rate is an annual variable rate of interest announced by Royal Bank of Canada from time to time as its prime rate.
2) Special Offers are discounted rates and are not the posted rates of Royal Bank of Canada. Specials Offers may be changed, withdrawn or extended at any time, without notice.
Mortgage funds must be advanced within 120 days of date of application in order to qualify for the Special Offer rate. Offer may be changed, withdrawn or extended at any time, without notice.
Personal lending products and residential mortgages are offered by Royal Bank of Canada and are subject to its standard lending criteria. Some conditions apply. Offer may be changed, withdrawn or extended at any time, without notice.
3) The Online Mortgage Pre-Approval tool provides you with the maximum mortgage lending amount and mortgage rate you may be pre-approved for by RBC, based on the accuracy and completeness of the information provided by you. Terms and Conditions will apply, please refer to the Terms and Conditions for full details.
4) We guarantee your interest rate for the selected mortgage type and term for up to 120 days from the application date. If the mortgage is not funded within the 120-day period, the interest rate guarantee expires.