I had received a quote of Prime-1.25% variable ARM rate from CMLS (commitment received few weeks back) vs. I have to compare with Scotia eHome 2.19% fixed rate (had locked it earlier on website). I am inclined towards taking variable one looking at the current conditions. Thought that I would go for converting it to fixed if the prime jumps after an 1.5 to 2 years. Does this make sense?
Few queries that I have-
- The calculation for monthly payment they have mentioned seems to be based on 3.45 Prime-1.25%. But the current prime is less on their website at 2.95% and CMLS still has to be announce drop to 2.45%. So, should I strike this and update the payment there? Or let it be there like that and Variable EMIs would anyways go down on its own anyways whether I do it or not?
- Total cost of borrowing- It shows that we have to pay an XYZ amount based on 2.5% APR. But isn't APR in a variable rate mortgage supposed to be changing based on the interest rates? How can this be fixed?
- In the commitment letter that I have to sign and share back, I see that it has compounding frequency- 'Monthly not in advance'. Because of monthly compounding instead of semi-annually, I see a increase of $4 per month in EMI which I found Ok. But what does it mean by 'not in advance'?