Why adjustable-rate mortgages will be in the sweet spot when the Bank of Canada pivots

financialpost.com:

Like kids waiting for Santa Claus, floating-rate mortgagors have waited months for the Bank of Canada to deliver savings. Instead, the central bank delivered another lump of coal March 6 — no interest rate cut and little hope of cuts for months.

That means homeowners needing rate relief may not get it until summer, or later. 

Cash-strapped borrowers will jump on the variable-rate train once that relief finally comes, hoping their payments drop as the prime rate drops. A 100-basis-point rate decline would cut their payments by roughly nine per cent on a 25-year amortization. 

But falling payments aren’t possible with all floating-rate mortgages. Most big banks sell variable-rate mortgages (VRMs) with fixed payments. If you want your payment to follow rates lower , you need an adjustable-rate mortgage (ARM). 

With a VRM, your payment generally stays the same but the split between interest and principal changes as the prime rate changes. The exception is when rates rise so much that you’re not covering the interest, in which case some lenders do increase the payment.

With an ARM, the principal paid stays the same each month, but the overall payment adjusts with the prime rate.

Here are eight insider tips if you’re out there ARM shopping :

Many lenders sell ARMs, partly because they’re easier to fund than a VRM — for technical reasons which I’ll spare you — but it’s hard to know which lenders do and don’t.

You’ll find ARMs at certain credit unions, CMLS, Equitable Bank, First National, MCAP, Merix Financial, National Bank, Radius Financial, RFA, RMG Mortgage, Scotiabank, Strive Capital and Tangerine, among others.

A mortgage broker can compare rates at all of these lenders in minutes. Tangerine and some credit unions