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Best 3-year variable open mortgage rates
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3-year variable open rates: Frequently asked questions
What are 3-year variable mortgage rate?
A 3-year variable mortgage is a relatively short mortgage term, with a rate that fluctuates over time, alongside changes in the prime rate. A shorter term gives you the opportunity to renew your mortgage sooner than longer terms like 5 or 10 years, so is a little more flexible. A variable-rate does introduce additional risk into your budget, as your regular payments may change alongside your mortgage rate, but they also let you benefit if prime rates go down during your term.
Are variable rates better than fixed rates?
Variable rates are not necessarily better than fixed rates - they suit different people at different times. Fixed rates, which are more popular in Canada, lock in a mortgage rate for the entire term and offer very consistent mortgage payments, which makes budgeting easier. Variable rates, on the other hand, let you take advantage of rate cuts, and have historically proven to offer better value over the long term. However, they are inherently riskier than fixed rates.
What is an open mortgage?
An open mortgage allows you to pay off your mortgage early, with no prepayment penalty. With an open mortgage, you can increase your regular payment at any time and by any amount, or make a lump sum payment against the mortgage. You can also pay off the entire mortgage at once. The alternative to an open mortgage is a closed mortgage, which restricts your ability to increase your payments or make lump sum payments without paying a prepayment penalty. The upside of closed mortgages is that they come with lower mortgage rates.
Are open mortgage better than closed mortgages?
Open mortgages aren't better or worse than closed rates, although they are less common. Open mortgages come with higher rates than closed mortgages, to compensate your lender for the additional flexibility that they offer. While a closed mortgage limits you from increasing your mortgage payments by charging prepayment penalties, the lower interest rate is generally worth the trade-off, as most Canadians don't plan to make additional payments on their mortgage.
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A guide to 3-year variable open mortgages
Jamie David, Sr. Director of Marketing and Mortgages
3-year variable open mortgages are not particularly common in Canada, but like all niche mortgage products, they serve a particular purpose very well. With the combination of a short term, a variable rate, and an open mortgage, this may well be the most flexible product on the Canadian mortgage market. But of course, there may be cheaper alternatives, depending on your situation.
When does a 3-year variable open mortgage make sense?
A 3-year variable-rate open mortgage makes sense when you need flexibility in your mortgage, and don't mind a variable rate. An open mortgage does mean you'll be paying a higher interest rate than you would on a closed mortgage, but it lets you pay off as much of your mortgage as you want at any time.
If you're expecting a large amount of money to come your way soon (an inheritance, for example) then an open mortgage would allow you to use that money to pay off your mortgage without any penalties.
Another situation this product could be useful would be if you were planning to sell your home in the coming years, and want to pay off your mortgage in full once the sale goes through. An open mortgage allows you to do that without penalty.
Open vs. closed variable-rate mortgages
Before taking out an open mortgage, it's important to consider whether the higher mortgage rate (compared to a closed mortgage) will end up costing you more than it would cost to break a closed mortgage early. Depending on the size of your mortgage and the amount of time you expect will pass before you pay off the mortgage, it might be the case that a closed mortgage is a better financial decision. This is especially the case with variable-rate mortgages, which tend to have lower prepayment penalties than fixed-rate mortgages.
Whether an open or closed mortgage makes sense for you depends a lot on your financial circumstances and future plans. The best thing to do is to speak to a financial planner or licensed mortgage broker to fully understand the financial implications of both options.
Jamie David, Director of Marketing and Head of Mortgages
Jamie has 15+ years of business and marketing experience. She contributes her mortgage expertise to The Globe and Mail and authors Ratehub’s mortgage and homebuying guides. read full bio