How are mortgage rates determined in Canada?
Mortgage rates are at an all time low in Canada. The crux of the matter is whether homeowners should opt for variable-rate mortgages or fixed-rate mortgages. Deciding the mortgage rate is a crucial factor because it determines the amount you are required to shell out each month. And with the incidence of delinquencies on the rise, selecting the right kind of mortgage best rate assumes greater significance.
Basically, there are 2 factors that determine mortgage rates in Canada.
How are variable or floating mortgage rates determined?
The rate for floating mortgage is linked directly to the Prime rate that is decided by the Bank of Canada. The bank declares the variable mortgage rates through scheduled announcements on a regular basis. Therefore, the current mortgage rate for variable rate mortgage is Prime.
How are fixed mortgage rates determined?
The fixed rate mortgages are determined differently. The rate for fixed mortgage is influenced by the bond market. This is because bonds form a competing investment vehicle to mortgages. The price of mortgages is usually higher than bonds because the mortgages are riskier. Mortgages are priced usually between 1.10% and 1.30%. In addition to the risk involved that increases the price of mortgage, the administration costs that the investor bears is also another reason for the default. Investors usually opt for mortgages because taking out mortgages are usually hassle free.
Under the present conditions, the most popular type of mortgage in Canada is the 5 year fixed rate mortgage. The existing rate for fixed mortgages is 4.39%. This is a bit higher than what it was a month ago when the daily mortgage rates was 3.50%.
Quoting a mortgage broker who is associated with one of the leading mortgage broker company in Canada “With current mortgage rates for both variable and fixed mortgages relatively low, consumers must decide based on their own preferences and unique circumstances. A mortgage broker can help consumers evaluate their current mortgage options and make an optimal choice”.
Related Resources:
Best mortgage rates – Kanetix: Save Time & MONEY with our free ‘best mortgage rates’ comparison service. Fixed or variable mortgages, first & second mortgage loans, home mortgage refinancing, bad credit.