• The mortgage interest rate (“Rate”) is based on the prime commercial lending rate (“Prime”) of Canadian chartered banks
• If and when Prime changes, the Rate changes on the first day of the month after Prime changes
• The instalment payment does not change if the Rate changes
• The instalment payment is comprised of both interest and principal repayment
• May be converted to a fixed-rate mortgage loan at any time
• May be prepaid in full at any time upon paying a bonus equal to 3 months’ interest
• The Rate is usually lower than fixed Rates
• The term of the mortgage is usually 3 years or 5 years

• Homeowners who wish to take advantage of Rates falling, or staying below fixed Rates
• Homeowners who may wish to sell and buy again in a short period of time (i.e. 2 to 4 years)
• Homeowners who may wish to pay the loan off as quickly as possible (HINT: Take advantage of monthly prepayment privileges by setting the monthly payment the same as if the loan carried a fixed Rate)

DISADVANTAGE

• If the Rate rises, and a negative amortization occurs, then the lender will adjust the mortgage payment

• The mortgage interest rate (“Rate”) is based on the prime commercial lending rate (“Prime”) of Canadian chartered banks
• If and when Prime changes, the Rate changes on the first day of the month after Prime changes
• The instalment payment changes if the Rate changes
• May be converted to a fixed-rate mortgage loan at any time
• The instalment payment is comprised of both interest and principal repayment
• May be prepaid in full at any time upon paying a bonus equal to 3 months’ interest
• The Rate is usually lower than fixed Rates
• The term of the mortgage is usually 3 years or 5 years

• Homeowners who wish to take advantage of Rates falling, or staying below fixed Rates
• Homeowners who may wish to sell and buy again in a short period of time (i.e. 2 to 4 years)
• Homeowners who may wish to pay the loan off as quickly as possible (HINT: Take advantage of monthly prepayment privileges by setting the monthly payment the same as if the loan carried a fixed Rate)

ADVANTAGE

• The amortization will not be affected if the Rate rises or falls

DISADVANTAGE

• The instalment payment will change as the Rate changes

• The Rate and instalment payment stay the same throught the term of the mortgage.
• The term may be in a range between 6 months to 25 years

• Homeowners who would not comfortable with the potential for the Rate or instalment payment to change
• Homeowners whose income will not change in the foreseeable future

• The mortgage interest rate (“Rate”) is based on the prime commercial lending rate (“Prime”) of Canadian chartered banks
• If and when Prime changes, the Rate changes on the first day of the month after Prime changes
• The instalment payment changes if the Rate changes
• May not necessarily be convertible to a fixed-rate mortgage loan
• The minimum required instalment payment is interest only
• Payments on account of the principal balance owing may be paid at any time without notice or bonus of interest
• The Rate is usually lower than fixed Rates

• Homeowners who wish to take advantage of Rates falling, or staying below fixed Rates
• Homeowners who may wish to sell and buy again in a short period of time (i.e. 2 to 4 years)
• Homeowners who may wish to pay the loan off as quickly as possible

ADVANTAGE

• The loan is not amortized

DISADVANTAGE

• The instalment payment will change as the Rate changes
• The loan is a ‘demand loan’, which means that the lender may demand payment at any time (HINT: Although this is possible, as long as the loan is repaid without default, it is rare that a lender demands repayment)

• The mortgage contains 2 credit facilities: a portion of it bears a fixed Rate and the other portion bears a fluctuating Rate
• The fixed-Rate portion requires a constant instalment payment to be paid
• The fluctuating-Rate portion requires minimum instalment payment of only interest
• As the principal of the fixed-Rate portion is reduced, it may be re-advanced against the fluctuating-Rate portion
• If and when Prime changes, the fluctuating Rate changes, as does the minimum instalment payment that is required to service the fluctuating-Rate portion

• Homeowners who want to benefit from the features of both types of mortgages
• Homeowners who may wish to sell and buy again in a short period of time (i.e. 2 to 4 years)
• Homeowners who may wish to use the equity in their home to finance major purchases (HINT: The Line of Credit portion may be used in lieu of high-interest credit cards, or, to pay off the cards)

DISADVANTAGE

• BE CAREFUL: Some lenders register mortgage documents that specify loan amounts that are greater than the amount borrowed, or the loan limits that are available. This can be problematic if a homeowner wishes to borrow a second mortgage loan for whatever reasons.