How do clients qualify for variable rate mortgages when no one knows what the rates will do?
Most banks will qualify clients on the three-year posted rate. That is an inflated rate to ensure that in case the prime rate goes up, the client will still have the means to make their mortgage payments. How do you gauge your monthly mortgage payments on a variable rate mortgage? Different lenders handle the monthly payments differently. Some lenders fix the payment amounts higher than the lower variable rate currently being charged. This means that when rates are low, more of the payment is applied to paying down the principal than the interest. When rates increase, then more of the payment would go to paying off the interest. Other lenders will base the monthly payment on what the prime rate is on a specific day, so it can vary from month to month. Still other lenders have three-month periods where the rate is set on a specific rate based on the prime rate. That is then the amount for the next three months, and it is revisited every three months for the entirety of the term. Banks h
