Understanding the Trends Behind Mortgage Rates

The Bank of Canada is expected by many economists to raise short-term interest rates in June or July, prompting many homebuyers and mortgage holders to ask whether a variable-rate mortgage or a fixed-rate mortgage is best for them.

How, exactly, are mortgage rates offered by lenders determined? Many Canadian mortgage holders are surprised to learn that the pricing for variable-rate and fixed-rate mortgages are determined by two different means.

First, let’s look at the pricing of variable-rate or “floating rate” mortgages. The rate for these mortgages is tied directly to the Prime rate, which is set by the Bank of Canada, usually through regularly scheduled announcements. A competitive variable rate mortgage is now commonly available at Prime (now at 2.25%*) minus 0.40%*, or even lower in some cases. “Those with variable rate mortgages need to keep an eye on the Prime rate,” asserts Justin Christie, mortgage broker with Mortgage Intelligence.

Pricing for fixed rate mortgages follows a separate dynamic, and is a bit more complex. Fixed-rate mortgages are priced in relation to the bond markets, as bonds are the main competing investment to mortgages for investors. Mortgages are priced higher than bonds, usually between about 1.20% and 1.90%, to account for higher risk of default and administration costs incurred by investors who hold mortgages as opposed to relatively hassle-free bonds.

The most popular type of mortgage in Canada is currently the five year fixed-rate mortgage. Discounted rates for this type of mortgage (available through a mortgage broker) have been trending upwards in recent weeks and currently stand at about 4.64%* or even lower in some cases.

“With rates for both variable and fixed mortgages relatively low, consumers must decide based on their own preferences and unique circumstances,” says Christie, “A mortgage broker can help consumers evaluate their mortgage options and make an optimal choice.”

Justin Christie, AMP
FSCO Agent Lic. M08001295
Mortgage Intelligence
FSCO Lic. 10428
The SunCoast Team
Voice: 866-544-4001
Fax: 866-869-1365
Web: www.suncoast.ca

HO:5770 Hurontario Street, Suite 600
Mississauga, ON, L5R 3G5

*Rates/product subject to purchaser/property qualification and change without notice. E&OE. OAC.

Mortgage Market Changes

Effective in April – make sure you’re in the know

Home buyers and real estate investors need to keep up with some upcoming changes to mortgage rules that could affect their purchase, if they are applying for a mortgage with a down payment of less than 20% of the value of the property.

Qualifying for a Mortgage
Borrowers applying for a variable-rate mortgage or a fixed-rate mortgage with a term of less than 5 years must qualify based on the Bank of Canada’s five-year fixed posted mortgage rate.

Rental Properties
A minimum down payment of 20% will be needed for government-backed mortgage insurance on non-owner-occupied properties such as rental properties. There are also changes in how much of rental income can be used when qualifying for financing.

Self Employed?
Make sure you contact us about how to show proof of income to lenders, and access mortgage products tailored for your needs.

Call Us
for the Information You Need to Know

For full details on the changes, and personalized advice on the mortgage that fits your needs, contact us for a free, no-obligation consultation.