CWB Optimum Mortgage

Understanding variable rate mortgages

Take advantage of lower interest rates and decrease your interest charges over the life of your mortgage.

Couple reviewing bills
  • Enjoy set payment amounts for the term of your mortgage. However, as interest rates fluctuate, so does the portion of your payment used towards interest versus principal.
  • Convert to a fixed rate mortgage anytime to lock in a low interest rate.

A variable rate mortgage offers:

  • Set payment amounts for the length of the term.
  • The opportunity to take advantage of lower interest rates if you have a flexible budget.
  • The possibility to be mortgage-free faster and save money on reduced interest costs.

 

As interest rates fluctuate, so does the amount of principal you pay each month with your monthly payment. As interest rates rise, more of your payment goes to interest and less to your principal. As interest rates decrease, more of your payment goes to paying down your principal.

What are my payment frequency options?
  • You can make bi-weekly, accelerated bi-weekly or monthly payments.
  • If you choose monthly payments, you can also select the day of the month that your mortgage payment is due.
What are my privileged payment options?
  • Pay a lump sum of up to 20% of your original mortgage amount once per calendar year.
  • Increase the amount of your regular payments by up to 20%.
  • Double up your regular payments
    • Your regular principal and interest payments will increase.
    • More money will be put toward paying down your principal balance.
How can I change my banking information to make payments?
  • Provide us with a copy of a void cheque and/or a bank authorization form stamped by your bank.
  • Allow a minimum of ten business days prior to your next payment date for your change to be processes.
What is the difference between a discharge fee versus a payout statement?

A discharge fee is:

  • An administration fee.
  • Used to process the payout and any subsequent documentation.
  • Subject to provincial guidelines.

A payout statement is:

  • A snapshot of your mortgage balance, accrued interest, arrears, prepayment charges, etc.
  • Used to show the amount required to pay your mortgage off.

Should you payout your mortgage, then mortgage discharge documents will be created to discharge the mortgage off title.

How can I get a lower interest rate?
  • Lock in a competitive interest rate through a fixed rate mortgage.
  • Decrease your long-term interest charges with a variable rate mortgage.
  • Blend and extend your mortgage rate—blend the rate on your existing mortgage with the rate of the extended term.
  • If you own equity in your home, take advantage of a home equity line of credit for a flexible mortgage solution that can change as your needs change.

The clients:

  • Judy and Chris were recently married and their parents gifted them a large sum of money for a new house.
  • Judy currently owns her own home and plans to sell it when she and Chris find their dream house.
  • Judy has a variable rate mortgage with an annual interest rate of 4.00%. She still owes $150,000 on her mortgage.
  • Judy investigates how much it would cost to pay off her variable rate mortgage.
            Mortgage amount outstanding: $150,000               Interest rate: 4.00%

The solution:

To estimate the prepayment charge:  

Step 1: Calculate 1% of the mortgage amount outstanding.  

(A) Judy and Chris’s mortgage amount outstanding

$150,000

(B) 1% (expressed as a decimal)

0.01

(C) 1% of the mortgage amount outstanding = (A) x (B)

$1,500

  

Step 2: Calculate 3 months’ interest.  

(A) Judy’s mortgage amount outstanding

$150,000

(B) Judy’s interest rate, expressed as a decimal:

4.00%
100%

0.04

(C) Prepayment charge of three month’s interest equals:

(A) x (B) x 3 Months  =  $150,000 x 0.04 x 3 Months 
             12                                       12

$1,500

 

The result:

If Judy chooses to pay down her mortgage when she sells her house, she will pay a prepayment charge of approximately $3,000 ($1,500 + $1,500).

If you have a variable rate mortgage and you prepay more than is allowed by your prepayment privileges, you will be subject to prepayment charges. You may also be subject to a prepayment charge if you: 

  • Refinance your mortgage.
  • Pay out your mortgage to transfer it to another lender.

 

How to calculate prepayment charges

For variable rate mortgages, the prepayment charge is equal to 1% of the mortgage amount outstanding plus three months’ interest calculated using the interest rate on your mortgage.

To estimate your prepayment charge, you can use the following calculation:

  [1% x mortgage amount outstanding] +

 [mortgage amount outstanding x interest rate x 3 months] 
                                                   12

Using these formulas will give you a good estimate of your prepayment charge. The actual prepayment charge may be slightly higher than the estimated value. Calculate your estimated prepayment charge.

Prepayment charges may change because you’re paying down your principal as you make payments. Part of each payment you make goes toward paying down your principal and, as a result, decreases your prepayment privilege over time.