Q: What happens to my mortgage payment when the prime rate changes?
A: If you have adjustable-rate mortgage, your payment will increase or decrease based on prime rate changes.
- When you first get a mortgage, your payment will be based on the prime rate at the time of boarding.
- When a prime rate change occurs, you will often be notified in writing by your financial institution of the new payment and the effective date of the change.
- Not all institutions might inform you in writing. If not, it’s likely that changes in the payment will take effect on the 1st of the month immediately following the prime rate change announcement.
Q: What happens in the prime rate changes on the 1st of the month?
A: If the prime rate changes on the 1st of the month, you can expect your adjustable rate mortgage payment to reflect the change immediately on your next payment based on your payment frequency (i.e. weekly, bi-weekly, monthly, etc.).
Q: Will I be notified of changes to payments for my adjustable rate mortgage?
A: Yes. With most banks and institutions, changes will be notified in writing, by a customer service member, online banking, or customer portal (if applicable).
Q: I am concerned about future interest rate hikes. What are my options?
A: Most banks will offer convertibility options for their variable and adjustable rate mortgage holders. This means that you can convert to a fixed rate at any time throughout the term of your mortgage. The rules for this option are:
- Your mortgage must be in good standing (up to date and paid as agreed).
- You must convert to a fixed term equal to, or greater, than the adjustable rate mortgage term you have remaining (i.e. 3 years remaining in your original adjustable rate term means that you can choose only between a 3, 4, or 5-year fixed term).
- Fixed rates offered at the time of converting will be at the bank’s current market rates. It is unlikely to receive promo rates that might apply to new purchases (or new business as the banks refer to it).