UNITING FAMILIES WITH THEIR GOALS
UNITING FAMILIES WITH THEIR GOALS
What are mortgage rates?
This page explains mortgage rates; it is not a live rate comparison or a lender quote. Unity Financial Services can refer mortgage enquiries to third-party financial advisors and lending companies across Canada. Keep in mind that there is more to a mortgage than just the rate.
Mortgage rates refer to the percentage of interest charged on a mortgage. This varies from lender to lender and on the type of mortgage you choose. Similar to a credit card, mortgage rates are determined by the lender and can be either fixed rates, staying the same for the term of the mortgage or variable rates that fluctuate.
Mortgage rates also vary between borrowers based on their application and credit profile. Your credit history is one of several factors lenders consider; a particular rate is not guaranteed. Mortgage rate averages also rise and fall with interest rate cycles and can drastically affect the homebuyers’ market.
How do mortgage rates work in Canada?
At its most simple, a mortgage rate is the interest you pay your lender for the use of their money.
In Canada, a mortgage is a type of loan given by a bank or mortgage lender for the purchase of a home. It allows you to get into a home without having to save up for the whole purchase price. The home acts as collateral for the money you are borrowing, meaning if you cannot afford to pay the mortgage, the bank or lender will take the home back. While this sounds scary, securing the mortgage against the property minimizes the risk to the lender. In turn, they can give much more generous interest rates and lend to more borrowers.
As with any other form of credit, however, credit is not given for free. The interest rate is what you have to pay in exchange for taking on the loan.
Purchasing a home and choosing a mortgage is likely one of the largest decisions you will make in life.
Some things you’ll want to consider:
- Type of mortgage: Fixed rate or variable rate, open or closed.
- Mortgage term: The length of time a mortgage rate, lender and conditions set out by the lender are in effect. Typically terms range from six months to up to 10 years.
- Amortization period: The total length of time it will take you to pay off your mortgage, typically people choose 25 or 30 years amortization periods.
What is a fixed rate mortgage?
With a fixed-rate mortgage, the interest rate and your mortgage payment will remain the same throughout your mortgage term. Unlike variable-rate mortgages, a fixed-rate mortgage does not fluctuate with the market. So the interest rate in a fixed-rate mortgage stays the same regardless of where interest rates go, up or down.
As an example, if you have a mortgage with a 5% fixed interest rate means that you will pay 5% until it is time to renew. This can give you financial peace of mind, knowing that your rate won’t go up before your term is done. Compare actual fixed and variable offers rather than assuming either will always be cheaper.
How do variable mortgage rates work?
A variable mortgage rate can change during the term, commonly with the lender’s prime rate. The lender sets its prime rate; the Bank of Canada sets its policy interest rate.
Some variable mortgages have fixed payments, while others have payments that change with the interest rate. With fixed payments, a rate increase can mean less money reduces the principal. Ask the lender about payment changes, trigger rates and your contract’s requirements.
How often do variable-mortgage rates change?
Variable mortgage rates can change when the lender changes the reference rate specified in your contract. The Bank of Canada’s policy decisions influence borrowing costs but do not directly set every lender’s mortgage rate.
For current policy announcements, consult the Bank of Canada. Ask your lender when a rate change affects your payments. The old 2022 announcement schedule is no longer a current calendar.
Which bank has the best mortgage rates?
If you have done any banking in Canada, you are already familiar with the Big Five Banks. The Big Five Banks is a term used in Canada to describe the five largest banks:
- RBC: Royal Bank of Canada
- BMO: The Bank of Montreal
- CIBC: Canadian Imperial Bank of Commerce
- Scotiabank: The Bank of Nova Scotia
- TD: Toronto-Dominion Bank
There are also mortgage brokers, both traditional ones and new online ones like Nesto, that will help you find the best fixed and variable rates from the Big Five and dozens of other lenders. Who has the best rates will be constantly varied. This is because interest rates are determined by national and world market forces, which means there are a number of reasons mortgage rates are different for different lenders. These include lender overhead costs, closing costs and mortgage bankers’ experience, among other factors.
Request current written offers from lenders or an appropriately licensed mortgage professional. Unity does not operate a live mortgage-rate comparison service.
When will mortgage rates go up in Canada?
Future mortgage-rate changes cannot be predicted with certainty. Fixed and variable offers may move differently, and a quoted rate can change before a lender confirms a rate hold.
The Bank of Canada sets its policy interest rate. Each financial institution sets its own prime lending rate and product pricing. Check the lender’s current terms, expiry dates and eligibility requirements before relying on an advertised offer.
How are mortgage rates calculated?
How mortgage rates in Canada and beyond are calculated can be extremely confusing to many people. However, interest rates are all around us so it’s important to understand them. They are especially important when it comes to purchasing a home and having to shop for the best mortgage rate.
Banks calculate the interest rates on the money they lend. So for example, for a fixed-rate mortgage, the bank will base the interest rates on what they are getting on the money they have invested (bond rates). They will then use those potential earnings from bond investments to cover their costs and possible losses incurred through a mortgage. The higher the rates the bank has to pay, the higher your mortgage rates will be.
Your payment depends on the amount borrowed, interest rate, compounding method, amortization and payment frequency. Do not assume that dividing an annual quoted rate by 12 reproduces every mortgage contract. Ask your lender for the applicable calculation and repayment schedule.
Why compare mortgage rates?
When you are finally ready to find your home, before you get started shopping, it is wise to know what the current mortgage rates are. After all, your rate will dictate how much interest you can expect to pay over the life of your term.
For example, higher interest rates make loans and mortgages more expensive. Homeowners in cities with high-priced real estate, like Vancouver and Toronto, can end up paying hundreds of thousands of dollars more than they borrow over the lifetime of their mortgage. Even small changes to the terms can mean saving tens of thousands of dollars over a 25-year amortization.
How can you compare mortgage offers?
Ask lenders or a mortgage professional for written offers based on the same borrowing amount, term and amortization. Compare the rate alongside fees, prepayment privileges, penalties and other conditions.
Unity Financial Services markets and refers enquiries; the third-party provider assesses your situation, gives product advice and handles the application. There is no live rate feed or anonymous comparison tool on this page.
Read the Financial Consumer Agency of Canada’s mortgage guide for an explanation of mortgage features.
Have a mortgage referral question?
Call +1 438 701 3770 or send a lending enquiry. Unity can connect you with a third-party provider; Unity does not lend or sell mortgage products directly.