One of the first things you need to consider while going through the mortgage application process is the mortgage rate. Your mortgage rate refers to the interest rate that your mortgage lender will charge you. There are different types of mortgage rates that you can consider when getting a mortgage.
One type of interest rate you can choose is a fixed interest rate. Just like the name implies, you will be given a set interest rate that will not fluctuate at all during the loan’s term. It is the most common interest rate that borrowers use due to its predictable payments.
Another type of interest rate you can opt for is a variable interest rate. This interest rate will change as interest rates as a whole change. If the interests rates across Canada drop, the rate charged to you will drop as well. If interest rates rise, your interest charges will too. While payments are less predictable, you could save lots of money during periods of low-interest rates.
Another interest rate option is a combination rate mortgage. With this option, part of your mortgage’s interest rate will be fixed, and another part will have a variable rate. Depending on market conditions, you can set the first half of your mortgage term to have a variable interest rate and the last to have a fixed interest rate or vice versa.
Exploring what your options are regarding your mortgage’s interest rate is something worth looking into, especially in Canada where COVID-19 has led to some interesting changes in the real estate market. The mortgage choices that you make can significantly impact your future and livelihood, so you need to pay close attention to mortgage rates and how you can structure your mortgage to best suit your needs.
Role of COVID in Affecting The Mortgage Rates in Canada
COVID-19 and its variants have caused mortgage rates to dip across Canada. If you already have a mortgage, securing an advantageous interest rate is still possible if you are interested in refinancing it. With much of the population vaccinated, interest rates are not expected to remain this low for the foreseeable future.
Downward pressure has been placed on interest rates due to the rise of the Omicron variant. Rising inflation rates and -19 variants have created a peculiar pull and push on mortgage rates in the country.
Due to the lockdowns and loss of millions of jobs during the pandemic, the Bank of Canada (BOC) lowered interest rates to reduce home foreclosures. Lower interest rates translate to lower monthly payments, which help homeowners build equity faster and save more money in the process.
With lockdowns mostly gone, the Bank of Canada is slowly raising interest rates. Here we are going to explore what has been impacting current interest rate changes in Canada, what the future hold, and how you can get low-interest rates for your next mortgage or refinancing.
Variable-rate mortgages are affected by commercial banks’ prime rates. The BOC’s overnight rate influences interest rates across the country. The BOC will reduce the overnight rate when the economy needs stimulation. When inflation is lowered, they will often increase the going interest rate.
The price of Canada Savings bonds will drastically influence fixed-rate mortgages, albeit the BOC also sets them. It should also be noted that the correlation between bond yields and fixed rates is positive. That is, as fixed rates increase, bond yields will also increase. Conversely, bond yields will also go down when fixed rates go down.
Mortgage rate changes may also be influenced by the interest rate type, the loan term, and the property amount. Having a good credit score may also help lower your monthly rates. Placing a large down payment is another way you can get a lower interest rate.
The loan amount and even the location of your home (i.e., crime rates, proximity to essential services) may serve as factors that affect mortgage rate changes.
Mortgage rates have gone up since the start of March 2022 and are expected to continue to increase over time, at least in the short term. Due to Covid-19 and the economic recovery in recent months, interest rates have increased.
If you are planning on refinancing your mortgage, then you should try and lock down a lower rate as soon as possible. Increases in rates may make it difficult for some people to purchase homes, especially if they are first-time homebuyers.
For example, the average price of a family home jumped from 1 million dollars to 1.33 million dollars in Toronto in recent months.
Many Canadians are struggling to make ends meet due to inflation and rising interest rates, with a recent poll showing that half of Canadians are living paycheck to paycheck.
The only reason mortgage rates have been low over the last two years is the viral outbreak. Now, with the advent of the new vaccines and the lower death rate of the Omicron variant, rates have spiked up in recent months and are expected to continue to go up.
Mortgage rates will have an impact on your overall financial well-being. If you have the opportunity to lock down a lower interest rate, then you should do so. As rates are expected to continue to increase over time, a variable rate mortgage may not be the best choice to make.
It is also important to keep your finger on the pulse. Speak to a financial broker or advisor and follow financial analyst forecast reports to track inflation numbers and mortgage rate fluctuations in your city.