Canada Mortgage Rates

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The Canadian economy as a whole seems to be fairing pretty well during this global economic downturn. While experts acknowledge that things have gone well so far, they also note that the situation may not stay so comfortable forever. Factors such as falsely low central bank interest rates and the Canadian government’s endorsement of risky mortgage promotions have financial experts worried. The Bank of Canada states that all-time low mortgage rates are crucial to Canada’s economic recovery, but can rates stay so low forever? How do you get in on a good deal?

How Canada’s Mortgage Rates Stack Up

That is a tricky question to answer because of the fluidity of interest rates. Right now Canada’s mortgage rates are in the single digits; this is favorable, and compares very well with other countries, including the United States. However, just like other countries, lending institutions are tightening their lending requirements in response to the global economic situation.

When it comes to actual, hard rates, these vary from lending institution to lending institution, and as such fluctuate greatly. Right now, Canadian 5-year rates are anywhere from 3.69% to 5.85%, depending on the lending institution. Generally, when consumers go to a bank, they will pay a higher interest rate than if they go through a brokerage service that will shop for the lowest interest rate possible. When lenders go with a specific bank, they are stuck with what that bank offers, and they have to do the research themselves to find the bank with the lowest rate. Sometimes the difference between rates from each source can be wide; sometimes as much as a point and a half.

There are many sources where you can find interest rates; make sure you are using one that updates frequently, to make sure you have the most accurate and up-to-date information available. With the way rates can move, when you see a good rate you need to act quickly so that you do not miss out on it.

The ten most populous cities in Canada are Toronto, Montreal, Calgary, Ottawa, Edmonton, Mississauga, Winnipeg, Vancouver, Brampton and Hamilton.


When is the Best Time to Apply for a Mortgage?

The easy answer is when rates are low. The more complicated answer is when rates are low, when you have good credit history, enough minimum down money, steady work, a good property chosen, do not have a bankruptcy in the recent past, and prices are not singificantly above their historical norm. All of these factors make getting the best deal on a mortgage and a home more likely. Garth Turner covers some of the more extreme real estate price distortions in Canada on his Greater Fool blog.

When rates are low

Interest is the price a lender charges a customer for borrowing a sum of money; the formula for finding an interest rate is i = r + π, where i is the nominal interest, r is the real interest and π is inflation. Mortgage rates are the rates lenders charge for loans used to finance or refinance a house. Interest rates can fluctuate minute by minute depending on the supply and demand of funds (how much money consumers are asking for and how much lenders have to lend), a government’s monetary policy (how much money is in circulation), the cost of government bonds and their yields, and inflation (the purchasing power of money).

When one of the factors used in figuring an interest rate fluctuate, interest rates will change. For instance: If the central government decides to print more money and introduce it into circulation to help ease a financial crisis, the purchasing power of that money goes down (and inflation rises). This causes interest rates to rise because now more money is necessary to purchase the same good or service than it did five minutes before that introduction.

When you are financially ready

Right now, it may be difficult for some Canadian borrowers to procure mortgage financing, just as it is difficult in other countries, including America. As with other countries, many Canadian lenders are requiring those trying to qualify for mortgages to have a minimum down payment of at least 15%; that means for those trying to purchase a home for $200,000 they need to have at least $30,000 in cash to put down immediately. Lenders are also specifying income, property, and credit requirements be met, along with stricter bankruptcy allowances.

That is not to say that a consumer looking to borrow money for a house will be turned down if he or she does not meet every requirement perfectly. There are programs available through lenders for those with less than perfect credit, including low credit scores or bankruptcies in the past, which will lend money to such borrowers. The catch is that the interest rate will be higher. This is because it is riskier for the bank to lend such an individual money (their financial history shows that he or she has a poor record of paying back loans, for example), and they want to be compensated more for taking such a risk. There are ways to lower such an interest rate though. If such a consumer were to take out a mortgage with a higher interest rate and continue to work and save money, continue to pay his or her bills on time, and improve their credit score, in a few years he or she may be able to refinance the loan for a lower interest rate (because they are no longer such a high lending risk), and lower their monthly payment.

Beware of Hidden Costs

There are hidden costs that borrowers need to be aware of when taking out a mortgage. Closing costs, legal costs, land transfer taxes, and other miscellaneous costs can turn a good deal into more than you bargained for when the dust settles.

  • Closing Costs: These are all of the costs encountered during the process of completing the mortgage. Such costs usually include any title transfer fees necessary to make the transaction legally binding, taxes associated with the property and the closing company’s services, any extra money that needs to be brought to the table to complete the transaction, utility payments on the property, and even items such as courier costs to transfer the paperwork from office to office. Sometimes closing costs can include big money items, but they can nickel-and-dime you to death.
  • Legal Costs: Generally include any filing fees or any fees associated with consulting an attorney for matters pertaining to the property; including notary fees in Quebec. Reviewing the terms of the offer by an attorney, preparing and signing the mortgage, doing title research, new title registration, attaining documents necessary to the property or the proceedings, and calculating suitable adjustment costs are all items that can usually be found under legal costs.
  • Land Transfer Taxes: Do not occur in all provinces. In some areas, the government charges a tax when property changes from one owner to another, and generally is figured based on the purchase price of the property. Make sure you contact the appropriate taxing authority for detailed information on whether such taxes apply to your purchase or not.
  • Other Costs: Can include services like property and home inspection, property survey, interest adjustments, goods and services sales taxes, appraisal fees, Realtor commissions, and other costs outside of the ones required by the closing company or lending institution. These types of costs can include moving expenses such as transportation, appliances, landscaping, or construction to the new property, and annual maintenance requirements such as heating and cooling equipment and roof shingles need be considered as well.

There are many factors necessary when considering a mortgage. It is important to know what interest rates are, how they are figured, and what components comprise them. It is also valuable to know what outside influences can act upon them causing them to rise and fall, and how this affects you as a mortgage consumer. By having this knowledge, you can better understand how to get the best deal on a mortgage, possibly saving you lots of money in the near and distant future.

Besides being well informed about mortgage interest rates, it is also important to know what factors you can control to make sure you get the best deal from your lending institution. Being aware and responsible with your credit, having an established work history, a good property picked out, and money in the bank for a down payment will help you get a great interest rate and a low monthly payment on your new home.

Being financially responsible and knowledgeable about your rate are only two parts of the puzzle though. Knowing about all of the costs included in purchasing a home will make sure that there are no surprises when it comes time to sign the papers on your new property. Know all of the costs encountered when completing your closing transaction and be aware of the condition of your property so that you know what types of expenses you will incur after you have the keys to your new home.

Knowing a mortgage rate is only a single piece to the homebuyer puzzle; make sure you are well informed as to the whole picture before you decide to complete your closing and move into your new property.