Understanding Your Mortgage Types
Make an informed decision that best fits your needs
Fixed rate mortgages
Locked in security and competitive interest rates
Enjoy peace of mind about future interest rate fluctuations during your mortgage term. You will know the exact amount of your monthly payments and what portion will go towards principal versus interest, and understand how long it will take to pay off your mortgage.
A fixed rate offers:
- A competitive, locked-in interest rate that won’t change during your term.
- Set payments that won’t change during your term.
- Peace of mind to stay on budget.
If you have a closed term, fixed rate mortgage and you prepay more of your mortgage 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 fixed rate mortgages, the prepayment charge is equal to 1% of the mortgage amount outstanding plus the greater of the two calculations below.
|Estimating 3 month's interest
|(Mortgage amount outstanding x current interest rate x 3 months) ÷ 12
|Using the interest rate differential
|(Mortgage amount outstanding x [current interest rate – similar mortgage interest rate] x number of months remaining in the term of your mortgage) ÷ 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 using our prepayment calculator.
Interest rate differential is the difference between your mortgage rate and the current rate for a mortgage that most closely resembles the remainder of your term, multiplied by the mortgage amount outstanding for the remaining time left on your mortgage (up to the mortgage maturity date).
Prepayment charges may change because:
- Posted mortgage rates change over time. As posted mortgage rates change, your interest rate differential (IRD) is impacted. This is because your IRD is based on the difference between your annual interest rate and the current posted interest rate of a mortgage that most closely resembles the remainder of your term.
- You pay down your principal as you make payments. Part of each payment you make goes towards paying down your principal. As you make payments, your mortgage amount outstanding decreases. Provided that posted mortgage rates do not change significantly, your prepayment charges will also decrease.
- The number of months remaining on your mortgage term reduces over time. As you pay down your mortgage, the amount of time remaining on your term decreases, impacting your IRD calculation
Variable rate mortgages
Take advantage of lower interest rates and decrease interest charges over the life of your mortgage
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. You can 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.
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:
|Estimating 3 months interest + 1% mortgage balance
|([1% x mortgage amount outstanding] +[mortgage amount outstanding x interest rate x 3 months]) ÷ 12
Using this formula 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.
Home equity line of credit (HELOC)
Understanding our HOMEWORKS® home equity line of credit
With HOMEWORKS®, you can pay as much or as little as you want, as long as you meet the monthly minimum payment, and pay interest only on the amount you use. You can manage your interest rate and maximize flexibility by splitting your available funds into three separate lines of credit.
Use your home equity line of credit (HELOC) to:
- Renovate your home
- Purchase a vehicle
- Pay off credit cards
- Consolidate debt
- Take a vacation
- Pay a child’s tuition
- Purchase a rental or vacation property
- Take advantage of an investment opportunity
HOMEWORKS®offers you the chance to:
- Keep your old monthly payments and reduce debt faster or lower your monthly payments and have more funds at your disposal
- Mix and match with other banking products
- Split your mortgage between variable and fixed rates
- Customize a HELOC plan that fits your needs
- Pay as much or as little as you want, as long as you meet the monthly minimum payment
- Pay interest only on the amount you use (lines of credit only)
- Manage your interest rate and maximize your flexibility by splitting your mortgage into two or three different types of lines of credit, mortgages and/or loans
- Get convenient access to your funds at one of Canadian Western Bank’s 41 branches or 2,400 ABMs across Canada
- Increase your HELOC limit if your home increases in value
- Access Canadian Western Bank’s E-Pay System—allowing you to transfer money to bank accounts with other financial institutions
|Line of credit