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Why do Variable rates go up?

What factors influence Variable rate mortgages?

There are many factors that influence mortgage rates from: social, and political issues, the health of the economy, unemployment, inflation, consumer confidence, and the housing market.

Variable Rates and the Overnight Rate

  • Overnight interest rate is the rate which banks borrow and lend one-day funds amongst themselves.
  • Overnight rate changes the cost of lending/borrowing for short-term funds and therefore influences the Prime Rate.
  • Lenders base their variable rates from the prime rate.
  • The prime rate is based off of the Bank of Canada’s overnight lending rate.
  • When prime rate goes up, so will your variable mortgage rate and monthly payments.
  • In a strong economy with prospects for high inflation, the Bank of Canada will raise the rates.
  • In a weak economy with prospects for stable inflation, the Bank of Canada will keep rates steady or decrease them.

For homeowners, taking on a variable rate mortgage can be seen as slightly “more risky” as your payments are subject to change should the prime rate increases.

At team Rick Sekhon, we help you review your personal situations and risk tolerance when determining if Variable rate mortgage is best for you.

Contact us today for your FREE NO Obligation one-on-one mortgage consultation.

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