Type of Mortgage Interest Rates
Fixed rate mortgages
A fixed interest rate does not fluctuate during the mortgage term. This option allows your payment to remain constant so you know exactly how much you will pay every month and the amount you will have paid off at the end of the term.
Variable rate mortgages
A variable interest rate will fluctuate with prime rate throughout the mortgage term. This impacts the amount of principal that you pay off each month as your mortgage payment will remain constant.
What determines variable interest rates
Variable interest rates are generally expressed in relation to a bank’s prime rate, which is set by the bank from time to time. A bank’s prime interest rate may change at any time.
What is basis point?
Changes to a bank’s prime rate are sometimes described in terms of increases or decreases in basis points. A basis point is a unit of measure that represents 1/100th of one percent (0.01%). For example, if interest rates are increased by 50 basis points, it means they were increased by 0.5%. The term basis point value simply denotes the change in the interest rate in relation to a basis point change.