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Best Mortgage Rates Canada
When it comes to mortgage rates in Canada, many things come into play. From purchase price to the region you live in, mortgage rates are always slightly different across the country. Although all rates are based on the Bank of Canada rate, the variances by region and individual can be significant. So, what factors can impact your rates, and how does one find the best rates in the country?
What factors impact your mortgage rates?
Several factors could impact your potential mortgage rate. Here are just a few of them, as the list is practically endless.
A mortgage rate will fluctuate with the current home market in the area. If homes are moving quickly and for the above asking price, then rates will adjust. They will also change if the market is doing the opposite.
Your credit rating is a critical part of figuring out your mortgage rate. As the higher and better your rate, the less risk a lender will have to offer you a mortgage. Some lenders have a credit rating cut off, while others add extra fees if you are below specific numbers.
Location of the Home
Naturally, the location of the home will affect the mortgage rates. The general rule is the more competitive an area is, the lower the mortgage rates in that region. Thus, if you are buying in a city core or a hot real estate area, your rates will be lower than in a rural community to the north.
The purchase price of your home may affect your mortgage rates. As home prices continue to increase and more people rely on mortgage default insurance, interest rates have to adjust. Think about it this way; lenders take on the risk that you can afford this home, so as the purchase price climbs, as does a lender’s risk.
As all mortgage rates are based on the Bank of Canada prime rate, that will naturally be one of the most significant factors that impacts your rate. If the prime rate is low, rates are low, and as it rises, so do rates.
Big 5 Bank Rates
For smaller lenders, especially a credit union or a specialized mortgage lender, what the big five banks are doing in Canada will affect their rates. If the big five are dropping rates, they will match; if they raise rates, the lender may choose to undercut or match; it all depends on the lender!
How to get the best mortgage rates in Canada
When you are looking to get the lowest mortgage rates in Canada, the real trick is to compare rates. There are a few things that you have to remember to help find that ideal rate.
The advertised and actual rate is going to be different
The advertised interest rate from any company is the baseline. Your specific rate could be higher, and it could be lower. It will depend on several factors that include: purchase price, location, credit score, mortgage amount, CMHC insurance, type of mortgage, among other factors.
Comparing smaller lenders and the big banks
Although the traditional lenders of mortgages are the big banks, smaller lenders have started to carve out a competitive niche. Lenders like Canwise Financial have begun to offer competitive rates that match or even undercut the larger lenders. Thus, you should always do your due diligence and shop around before you agree to a rate just because you bank with a specific institution.
Use a mortgage broker
Unless you have been around the mortgage industry for years, chances are a mortgage broker may be able to assist you in navigating the current mortgage rates. Brokers are an integral tool for homebuyers, as they can access and assess hundreds of lenders with ease. Plus, brokers often get a bit of a better deal from lenders! We will touch on why using a broker is a great choice a little further down this article!
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Should I get an open or closed mortgage?
First, let’s look at what we mean when we talk about an open mortgage or a closed mortgage. Open mortgages allow a borrower to pay off the entire mortgage amount at any time without a penalty. Open mortgages generally have a premium attached to the rate, which can add up to a whole percentage point. While a closed mortgage allows limited lump-sum payments and if the mortgage is paid in full includes a penalty.
Now, on the surface, an open mortgage seems like a great option, but it is not that great. You can treat an open mortgage like an open credit product, and thus unless you are using it for short-term financing, it will cost you a lot of money over the term. While a variable rate mortgage gets you a better interest rate and the penalty to pay off the entire loan is small. An open mortgage should only be considered in particular circumstances. Otherwise, a closed mortgage is almost always the better option for borrowers.
What is the difference between a variable vs. fixed mortgage rate?
Below you will find the difference between fixed and variable rates.
Variable Mortgage Rates
As the name suggests, a variable rate mortgage has a variable interest rate throughout the term. Generally, variable mortgage rates are the lowest mortgage rates as the risk of an increase in the interest rate rests on the borrower rather than the lender.
These mortgages used to be quite popular, as the interest rate was moderate and had minimal movement. However, with the onslaught of COVID-19 throughout the country, variable rate mortgages fell out of favour with the record-low interest rates. However, those Canadians who were still on variable rates during the COVID-19 pandemic have certainly benefited. Considering just before the pandemic, interest rates were around 3-4%; these borrowers save thousands of dollars per year on interest as they went with a riskier pick.
A variable rate is a risk, and with the current market conditions, it might not be the best choice unless you believe that the market will maintain these record lows.
Generally, lenders offer 5 year variable rate mortgages that either update monthly or yearly, depending on the loan type.
Fixed Mortgage Rates
Fixed rates, on the other hand, as the name suggests, are fixed over the loan’s term. That means that it will not go down or up when you agree to a specific rate, no matter what the market is doing. Fixed rates have long been the preferred option for borrowers who want a steady, predictable mortgage payment.
As fixed rates require the lender to take on the risk that the interest rate will rise, these fixed rate mortgages are generally a little higher than variable rates. However, the extra cost can certainly be worth it in the long term.
For instance, fixed rate loans are currently the most popular option as the interest rates are so low right now. Borrowers are signing up in record numbers for 5 year terms, and even longer if allowed!
Fixed rate mortgages are generally offered on a 1 year, 2 year, 3 year or 5 year term.
What are prepayment options?
Prepayment options allow you to put sums of money on your mortgage a certain number of times during your mortgage term. This type of payment is not uncommon, and most lenders allow for prepayments to a certain percentage each year. It is estimated that most Canadians can afford these prepayments and that only 36% of mortgage holders made additional payments on their mortgage early.
It should come as no surprise that prepayments are under-utilized. Many borrowers are not aware they can do this as lenders do not advertise this flexibility. A prepayment can help lower the overall interest that you are paying on the loan and help you save hundreds, if not thousands of dollars down the line. It is important to check with your lender on the exact rules for your mortgage to complete prepayments as breaking the rules could cost you additional money.
Should I work with a bank or a mortgage broker?
This is a question we get a lot, and it depends on what you are looking for in your lender. Banks, especially the big five, have been the traditional lenders in the market. They have set rates and utilize a complicated algorithm to do most of your mortgage specialist’s work. However, that mortgage specialist works for the bank and is not trying to get you the best rate on the market; they are trying to get you the best rate at their branch.
On the other hand, mortgage brokers are working with you to find a lender with lower interest and a lower mortgage monthly payment. Brokers do not work with any single lender. Instead, they work with practically every lender in your community. Plus, as brokers get paid by the lender, they are free to use for borrowers.
As we noted, we can’t tell you which one to use, but for our money and our expertise, we like to recommend using a mortgage broker. You are not limited to a single bank or lender, and with a broker, you might even get access to a better interest rate than you could find on your own. Now that is a win-win!
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Below you will find some of our most frequently asked questions. As a Canadian source for all things mortgages, we have included everything from questions on comparing mortgage rates to some predictions for 2021 and beyond!
Why should I compare mortgage rates?
Why should you compare mortgage rates? The answer is pretty straightforward; you compare mortgage rates because it can save you money. Consider this: When looking for a new fridge, do you buy the first one you see? No, the chances are that you will shop around at your local hardware store, look online at a few different retailers and maybe even go into the store. You don’t want to overpay at Home Depot for the same fridge you could get for cheaper at Rona, for instance. Why would you not make a mortgage rate comparison on something that could cost you thousands of dollars over the loan term?
Mortgage rates, although all based on prime rates, do differ between lenders. Fees are a little different, and depending on the risk, borrower costs could also be extra. Thus, when you are in the market for a mortgage, it is best to shop around! If that sounds like a lot of work, you can also utilize a mortgage broker who can work with you to find the best mortgage rate. No matter if you use a broker or not, a mortgage rate comparison is an intelligent process that can save you money over the mortgage term.
How much can I save by comparing mortgage rates in Canada?
The question of how much you could save by comparing mortgages is a pretty big depends. Naturally, as every mortgage rate will vary a little by the lender, it is hard to say a concrete number of how much you can save. However, let’s do some math and showcase what a whole percentage point can mean for the length of your amortization period.
Suppose you were to buy a $200,000 home and take out a $160,000 mortgage to pay for the home. A single percentage point difference in your interest rate would mean that you would be paying $100 more per month on your monthly mortgage payment. That might not seem like a lot, but over a 30 year term, you would pay almost $30,000 in interest over that mortgage term. That is a lot of money. You could go on a five-star vacation to Europe for weeks for that, or even buy a car! This is why comparing your mortgage rate is such an essential exercise when looking for a mortgage. The rates may only differ by a little, but when we are talking about hundreds of thousands of dollars, a little turns into a lot over the loan’s lifetime.
What is a mortgage rate hold?
A mortgage rate hold is generally part of the pre-approval process. As the name suggests, a rate hold is where a borrower can lock in a specific mortgage rate for a pre-set number of days. Most lenders offer a 120-day rate hold, but others also use 90 or 60-day rate holds. As you would expect, rate holds are only applicable to fixed rate mortgages as the variable rate changes daily.
Which bank is giving the best mortgage rates?
No one bank is giving the best rates available in your area, as it will depend on the individual. However, Canwise has been leading the way in advertised rates, with other Canadian mortgage lenders such as First National and a handful of credit unions close on their tail. The last year or so has been the year of the small specialized lender. With their flexibility and already online footprint, these lenders have lavished in the online mortgage world.
As we note, it is best to shop around to find where the lowest current mortgage rates are, and whether you are looking for pleasure or are trying to secure the best mortgage rate, our in-house mortgage calculators can help you find it!
Will mortgage rates go down in 2021 Canada?
Although we would like to say yes, in 2021, mortgage rates are not expected to go down. Depending on how vaccine rollouts go across the country, we may see an increase in mortgage rates as the economy recovers. The current prime rate is at a record low, and the Bank of Canada will only maintain this low rate as long as it needs to spur on the economy. Thus, we should see the prime rate rise over the rest of 2021, and mortgage rates will increase with it.
What is the best 5 year mortgage rate in Canada?
Here are some of the best 5 year mortgage rates we have seen in Canada as advertised on multiple mortgage calculators. The rate type is varied, and is based on a 25 year amortization. The lower rates, as we should expect are on CHMC protected mortgages which borrowers have put down less than 20 percent. As we have noted a few times, this rate may be different from the actual rate you secure after chatting with the lender and going through the process. These rates were last updated in early April 2021.
5 year fixed-rate mortgage with a high ratio mortgage
Canwise Financial- 1.68%
Meridian Credit Union- 1.69%
5 year fixed mortgage rates
Canwise Financial- 1.78%
5-year variable rate mortgage with a high ratio mortgage
Canwise Financial- 1.20%
Meridian Credit Union- 1.40%
5-year variable rate mortgage
Canwise Financial- 1.35%
First National- 1.55%