Changing interest rates have been dominating the news lately. And there’s a good reason for that, as changing interest rates can significantly impact whether people can continue to afford their houses.
We’ll explain the following:
- What causes interest rates to go up?
- How interest rates increase impact variable-rate and fixed-rate mortgages.
- What a trigger rate is when you have a variable-rate mortgage.
1. What causes interest rates to go up?
Several factors, including the length of your mortgage term and your credit history, can impact the interest you’re eligible for. However, the most significant factor that causes interest rates to go up is the Bank Of Canada raising their overnight rate.
This rate is what banks use to set their prime rate, which in turn is what is used to set mortgage interest rates.
2. How do interest rate increases impact fixed-rate and variable-rate mortgages?
If you have a fixed-rate mortgage, then interest rate increases will only impact you once your term expires, and you must renew your mortgage. Your interest rate is “locked in” and will not change until the end of your mortgage term.
If you have a variable-rate mortgage, then you will be impacted by interest rate increases. The interest rate you are paying will go up, which means more money will go towards interest, and less money will go towards paying off the principal. Your mortgage payment will not automatically increase.
3. What is the trigger rate for a variable-rate mortgage?
The trigger rate happens when interest rates have risen enough that your mortgage payment is no longer sufficient to cover the interest on your mortgage. You have three options when this happens.
You can either increase the amount of your mortgage payments, put down a lump sum to decrease the overall cost of your mortgage (if allowed within the terms of your mortgage) or move to a fixed-rate mortgage.
With all these rate increases, how can I get a low mortgage rate?
The best way to get a low mortgage rate for a Toronto-area home is to shop around.
At Northwood Mortgage, we find a low mortgage rate for you.
We work with a variety of lenders, from banks and credit unions to private mortgage lenders, to ensure we can offer you the best mortgage rate you qualify for.
There are also things you can do to help ensure you can access a low mortgage rate, such as having a good credit score and saving up a sizeable down payment. Both things make lenders more likely to offer you lower mortgage rates for a Toronto home.
Want to get started shopping for a low mortgage rate today? Call us at 888-257-8130 or contact us online to schedule an appointment.
