Calgary 3-Year Variable Mortgage

Fixed mortgages have always been the go-to option for the larger Canadian market, but some borrowers gravitate towards variable mortgages. 

These mortgage types don’t have fixed rates; rather, lenders charge variable rates based on the prime rate. Here’s more about Calgary’s 3-year variable mortgages.

What is a 3-year Variable Mortgage?

A three-year variable mortgage is a loan with three years loan term, and the interest rate isn’t fixed. The interest rates change during the mortgage term based on the prime rate. Typically, the prime rate is the standard rate banks lend to borrowers with low credit risk.

These rates are stated as a premium or discount to the prime rate. For example, if the standard rate is 5% and the variable mortgage rate is prime+ 0.3%, the effective rate will be 5.3%. 

If the prime rate changes, the effective rate and the mortgage payments also switch. In Canada, lenders offer variable-rate mortgages with fixed or variable payments. This means:

• If the variable-rate mortgage has fixed payments, you pay fixed monthly payments. The mortgage payment is calculated at the beginning of the contract and doesn’t change during the mortgage term. The interest portion of the payment changes with the prime rate, but the total payment is constant throughout the term. As such, if the prime rate increases, the interest payment increases while the principal decreases (but the total payment is fixed)
• If the variable-rate mortgage has variable mortgage payments, the monthly payments fluctuate as the prime interest rate changes. If the rate increases, so does the mortgage payment to cater to the interest component

Benefits of 3-Year Variable Mortgages

So why would you sign up for a 3-year variable-rate mortgage?

Ideal for Short-term Projects

Calgary 3-year variable mortgages are ideal for borrowers looking to fund short-term projects at low-interest rates or pay off a mortgage quickly. 

The three-year period means you won’t lock in funds for a long time and can quickly take on another project at the end of the term.

Low-Interest Rate

Their short-term nature enables lenders to charge lower interest rates than longer five-year mortgages. The low upfront costs are a major draw, as evidenced in the second half of 2021. 

There was a significant uptick of Canadians signing up for variable-rate mortgages to buy homes and renew mortgages due to the low upfront costs.

Great Flexibility

Variable-rate mortgages offer greater flexibility than fixed-rate mortgages. That’s why homeowners anticipating a fluctuating income take advantage of these mortgages.

Who Can Take Calgary’s 3-Year Variable Mortgage?

Variable-rate mortgages are ideal for borrowers who: 

• Anticipate declining interest rates
• Want to pay off mortgages before the interest rate is adjusted
• Plan to leave their home after a few years

It would help if you talked to a professional before taking a variable-rate mortgage, especially if you want to take advantage of fluctuating interest rates. 

Calgary mortgage brokers can tell you if the interest rates will decline and the best time to sign up for such a mortgage. Remember, you must also have enough disposable income in case the interest rates increase.