What are the penalties for breaking a variable mortgage versus a fixed one?
This article has been updated from a previous version. If you decide to break your mortgage, w...
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So, you want to buy a home and are shopping for the best Scotiabank mortgage rates. That’s great! LowestRates.ca can walk you through everything you need to know about mortgages, plus how to find the rate that best fits your financial needs and personal circumstances. First, it helps to be on the same page when it comes to key mortgage facts and terminology.
Mortgage loan agreements are calculated by considering the expected length of time it will take you to pay back the debt in full, including interest. This timeframe is called the amortization period. The interest rates you pay on that loan are established via a set mortgage term (between six months and 10 years) until the debt is repaid. Borrowers usually go through multiple mortgage terms before fully paying off a loan. There are two key types of mortgages:
There are also hybrid mortgage agreements that combine both fixed and variable elements.
Through LowestRates.ca, you can access Scotiabank mortgage rates today. We allow you to compare quotes from 50+ Canadian banks and brokers. It only takes three minutes, it’s free, and there’s no obligation to take the rates we offer you. Choose whether you're buying a home, renewing or refinancing and click “Get Started” above to see mortgage quotes, or keep reading to learn more about getting a mortgage with Scotiabank.
Are you wondering what a prime mortgage rate is exactly? Every Canadian bank or financial institution sets a baseline percentage that is used to determine the interest rates they charge borrowers for variable rate loans, including mortgages. This is called the prime rate, or prime lending rate.
There are other factors that influence variable interest rates offered by Scotiabank, but the prime rate serves as a starting point. You may have heard or seen mortgage rates advertised as “prime plus 1%.” If you choose this interest rate, you would owe whatever the bank’s prime rate percentage is at that moment, plus an additional 1%.
The prime rate itself can change regularly and is influenced by several considerations. Scotiabank and other lenders each set their own prime rates. The prime rate is affected by both national and global economies as well as the Bank of Canada. The country’s central bank sets a policy interest rate, mostly based on the strength of the economy. The Bank’s policy interest rate significantly influences the prime rates set by banks and other lenders.
Different lenders offer different mortgage rates. When you compare Scotiabank mortgage rates using LowestRates.ca, you can see how different lenders stack up against each other.
Mortgage lenders like Scotiabank publicly advertise interest rates for different types of loans they provide. Posted mortgage rates can be found easily on a bank’s website, but they might not necessarily be the best rates available to you (more on this below).
Each type of home loan posted by the bank usually includes a variety of options for the borrower, based on parameters like time frame (referred to as “term”). For example, Scotiabank’s variable mortgage loan rates encompass a three- or five-year closed term. Variable rates are based on the Scotiabank’s prime rate, and can change over the course of your mortgage term.
The fixed rate mortgages that are posted by Scotiabank are also organized by term length, and can range from six months to 10 years. Fixed interest rates are set in stone for the entire term.
Posted mortgage rates are a good reference point, but a posted rate isn’t necessarily the best rate you can get –– especially if you shop around and get quotes specific to your needs from LowestRates.ca. When you apply for a mortgage, you’ll also need to pass a “stress test.” This tests your ability to afford payments at the Bank of Canada’s qualifying interest rate, which is typically higher than the actual interest rate you’ll end up paying.
If you choose a fixed rate mortgage from Scotiabank, your interest rate will not change during the mortgage term. This means you’ll always know how much your interest payments cost, and how much of the mortgage balance you’ll pay off during that period. Fixed rates can be higher than variable interest rates, because the latter fluctuates based on the bank’s prime lending rate. So you might miss out on lower interest payments if the prime rate dips during your mortgage term, but will also be protected if the market drives interest rates higher than your fixed rate.
If you think interest rates will go up, a fixed rate mortgage with Scotiabank may be the right choice for you. The lender offers fixed rate mortgage terms that are as short as six months and as long as 10 years. Shorter terms can be either open or closed mortgages, while any term longer than a year must be closed. Open mortgages often allow you the flexibility to pay more towards your loan balance than has been agreed upon, or even pay it off if you want to, without incurring charges. While closed mortgages usually limit options to pay down extra mortgage debt. That said, interest rates tend to be cheaper for closed mortgages.
With many different options available, it pays off to compare Scotiabank mortgage interest rates on LowestRates.ca to make sure you find the best available rate and terms.
Unlike a fixed rate mortgage, the percentage of interest you pay with a variable rate mortgage fluctuates depending on Scotiabank’s prime rate.
If interest rates stay low, the benefit of a variable rate mortgage is that your mortgage rate will be low, too. But with changes to market conditions and the prime rate, you could also end up with higher interest payments than expected.
Now, thanks to variable interest rates with fixed payments, the actual mortgage charges you pay –– probably bi-weekly or monthly –– are unlikely to be affected one way or the other by prime rate fluctuations (unless interest rates dramatically increase). But more or less of your monthly payment will be directed to your principal loan, depending on how high or low interest rates are running at that time. So with this model, you will not be able to calculate how much of your mortgage will be paid off by the end of your term. The uncertainty means there’s simultaneously both more risk and more potential for reward.
Scotiabank offers three- and five-year closed term variable rate mortgages with a few different features. The three-year term is protected by a cap rate, so you can rest easier knowing that your fluctuating interest rate will never go above a certain amount. The five-year term doesn’t have a cap rate, but does allow for some extra prepayment (up to 15%) of your original loan amount –– which isn’t always possible with closed mortgages. A five-year open variable rate mortgage is also available from Scotiabank. An open mortgage allows you to make additional payments against your original loan, at any time for no charge.
Every home loan Scotiabank offers has a variety of specific features and even options to choose from or negotiate. To narrow down the mortgage that is ideal for your financial circumstances and new home, compare quotes on LowestRates.ca.
In addition to their specific fixed rate and variable rate mortgage options (see above), Scotiabank has created special programs to meet the needs of homeowners who may require different kinds of support.
Their Long and Short Mortgage is for borrowers who want both the security of a longer fixed rate mortgage and lower-interest short term rates. The hybrid model works in two parts. One portion of the mortgage payment is variable, resetting each time the Scotiabank prime rate adjusts and the other mortgage payment segment is at a fixed rate for the full length of their chosen term.
Scotiabank also offers options designed for either temporary or permanent residents of Canada, who are likely trying to buy their first home in the country. The Start Right programs offer newcomers the choice of either a fixed rate (for terms ranging from six months to 10 years) or a five-year variable rate mortgage. Conventional and insured financing is available for both Start Right programs.
Once you figure out the type of mortgage you’re looking for and the term you’re interested in, you can apply for a mortgage pre-approval from Scotiabank. A pre-approval from a lender shows how much they’re tentatively willing to lend you. Every lender has different requirements for qualification, but their assessment of your application will likely be based on an (internal) analysis of your:
Pre-approval is an important part of the mortgage process because it allows you to access and compare options. Also referred to as mortgage prequalification or mortgage preauthorization, pre-approval will tell you the maximum loan amount you qualify for, an estimate of what your mortgage payment could be and offer a temporary hold on the interest rates you’ve been quoted (so if you go ahead with the mortgage, you’re guaranteed those rates within a certain time frame).
Pre-approval does not guarantee that your mortgage loan will actually be authorized by Scotiabank, but it’s a good starting point.
There’s no way to know for sure how much of a mortgage loan Scotiabank will approve until you actually apply, but there are some industry standards to consider when it comes to figuring out how much debt you can afford to take on. First, your housing costs (so in this case, your regular mortgage payments, taxes, utilities etc.) should not be more than 35% of your total income before taxes and other deductions. And secondly, your total debt (so everything you owe to other creditors of all types) should not be more than 42% of your total income before taxes and other deductions.
Scotiabank has a mortgage calculator you can use to determine how much your payments might be, so you can access an estimate of your potential housing costs. A tip from the Canada Mortgage and House Corporation (CMHC): “Borrow less than you’re allowed.”
The specific terms and conditions of your Scotiabank mortgage will depend on the details you end up negotiating. But generally, there will be requirements and penalties related to not just when, but how much of your debt is paid, in accordance with your mortgage agreement, for the duration of your set term. Also if you break any element of your mortgage contract, you may have to pay a fee.
Keep in mind that there are also a few characteristics of a home loan that differentiate it from other types of debt and will affect your mortgage experience. For instance, you may still owe a balance at the end of a mortgage contract (term), so you will then be required to either renegotiate a new term or transfer your remaining balance to a different lender.
If you’re nearing the end of your term and haven’t paid off your mortgage in full, you will need to decide whether you want to renew your mortgage with Scotiabank or look at mortgages from other lenders. Whether you’re buying a home, renewing or refinancing, you can use LowestRates.ca to compare what Scotiabank offers with mortgage rates from across Canada.
You must renew (or move) your mortgage by the maturity date of your current contract, which is the last day of your mortgage term.
An amortization period outlines roughly how long it will take to pay off your mortgage loan in full. The amortization period is determined when you’re working out the details of your mortgage contract. The longer your amortization period, the less your regular mortgage payments will be, but also the longer it will take to pay off your mortgage. Keep in mind that an amortization schedule can change if a mortgage agreement is modified or renewed with different terms –– so it’s an estimate based on the interest rate you are currently paying or are set to pay.
The longest repayment period offered by Scotiabank is 30 years for uninsured mortgages. For mortgages that require default insurance, 25 years is the maximum amortization timeline.
The fastest way to pay off your mortgage is to pick the shortest possible amortization period, coupled with the largest regular payment amounts you can afford. Regular payments can be weekly, bi-monthly, semi-monthly or monthly with Scotiabank. Depending on the type of mortgage you have –– open, closed or a hybrid of the two –– you can also increase payment amounts or make extra payments when you have the funds to do so, say if you get a raise or inherit cash. In the case of a closed or hybrid mortgage, however, remember that extra payments may cost you a fee or penalty.
Say you want to pay off your mortgage early, or break your contract to move to a different lender. If you break your mortgage before its maturity date (the final day of the term), you will likely have to pay a financial penalty. The amount will depend on the particulars of your mortgage agreement. For instance, a variable rate closed term mortgage might demand three months’ interest on the amount you are going to prepay. Whereas a fixed rate closed term mortgage might incur a more complicated fee based on the number of months left in the term, current interest rates at the time you break the agreement and the principal amount to be paid.
Be sure to learn and understand the prepayment terms associated with your specific Scotiabank mortgage before signing on.
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The better informed you are, the more likely you'll negotiate a better deal for yourself. And, really, that’s what we care about the most.
This article has been updated from a previous version. If you decide to break your mortgage, w...
This article has been updated from a previous version. As the world slowly returns to normal —...