The Bank of Canada reduced its key interest rate by a 1/4 (0.25%) point today, and most lending institutions are expected to respond by cutting their prime lending rates by a quarter point.

Homeowners with variable-rate mortgages or lines of credit based on the prime rate will welcome this rate drop.

For consumers uncertain about the direction of mortgage rates, Home Mortgage suggests some helpful approaches.

1. For homebuyers not sure if they should “lock in” their payments, a variable-rate mortgage will allow them to monitor rates while having the option to convert to a fixed-rate mortgage. With a “closed” variable mortgage, the borrower would have to stay with the same lender when switching to a fixed-rate mortgage or be subject to a penalty. With an “open” variable mortgage the borrower is free to change lenders, which can give added negotiating power should they wish to change to a fixed rate.

2. For homebuyers wanting to go with a fixed-rate, a mortgage pre-approval with a rate hold offers some security in a shifting interest rate environment. A mortgage broker will often be able to obtain a rate hold for a 120 day period

If rates for fixed mortgages rise during the rate hold, you have your original lower rate. If rates drop, you’ll benefit from the new, lower rate.

3. For homeowners currently in a fixed-rate mortgage, it can pay to fine-tune how they make their payments. Switching from regular monthly payments to accelerated bi-weekly payments can offer a way to pay down debt more quickly and save on interest costs over the life of the mortgage.

On a $200,000 fixed-rate mortgage at a now-competitive 5.99%, monthly payments would be $1,278.42. Over the 25 years of this mortgage the borrower would pay $183,529 in interest.

With the same mortgage but with accelerated bi-weekly payments, the borrower would pay $639.21 every second week, and save $33,923 in interest and pay off the mortgage in just 21 years.