Here is a way to potentially save money on your mortgage and look totally cool in the eyes of any economists that you may encounter.
The variable rate mortgage which is priced off the Banker’s Acceptance Rate will potentially position a slightly lower rate than what a mortgage would receive with a typical variable rate mortgage.
A typical variable rate mortgage is priced off the Prime Rate which is what financial institutions charge their most credit worthy customers. The prime rate is also influenced by The Bank of Canada and its policies on interest rates. Variable Rate mortgages account for approximately 23% of new and renewed mortgages. Considering the current Bank Prime Rate, variable mortgages are generally discounted from the prime anywhere from 0.50% to 1.00%.
Banker’s Acceptance (BA) is the rate at which financial institutions charge each other for short-term borrowings. BA rates however will therefore fluctuate more than the prime rate. Banker’s Acceptance mortgages are different in comparison to variable mortgages in that the base rate on a Banker’s Acceptance mortgage is actually marked up in the same way that mortgages tied to the prime are discounted.
A close comparison of BA and prime rates over the past decade shows that it may be possible now and then to save a tiny bit more in a falling-rate environment. Other than the underlying rate they use, BA and prime mortgages are quite similar.