I was reading the 24hrs news paper today and came across this article in terms of what a variable mortgage product is. Where it’s some what true it doesn’t sit well with me as they are telling the public that this is the only option.
Well it is the only option, with this one bank they spoke with.
They are saying here that if prime goes down more of your payment will be applied to principal. Great! But what happens when prime goes up? Your payments stay the same and more is applied to interest. Which is not good at all. This has to be the worst variable mortgage product out there and something I would never put a client in to.
The biggest reason why is that when and if prime goes up, your payments should go up accordingly. If not then you will go in to what we call negative amortization. If you were to start on a 25 year amortization and then prime goes up, your amortization would actually start to increase. Why? Because that portion that was going to principal is now going to interest.
I’ve seen it in the past where someone has gone from 25 years all the way up to 40 years in one years time. And with the only way for prime to go is up, (even though it may take a long while) this is not a good product for you.
This is why it’s key for you to consult an independent mortgage broker as we have options…a lot of them! We’re not tied to one bank or lenders options.
