Mortgage Rates

A mortgage rate hold is an agreement with a lender or mortgage broker that guarantees a specific interest rate for a set period of time, typically between 30 to 120 days, even if market conditions change during that time. This can be especially useful if you're in the process of buying a home but haven’t finalized the deal yet or if you're still shopping around for a property

1. 1. The rate hold guarantees your offered interest rate, even if rates increase before your mortgage is finalized, potentially saving you money.
2. 2. A rate hold does not guarantee mortgage approval. The lender must still verify your finances. If you’re approved, the rate remains the same; if not, the hold does not apply.
3. 3. If rates drop during the hold, some lenders might allow you to benefit from the lower rate, depending on their policies.
4. 4. Most rate holds are free, providing a low-risk way to secure a rate while you look for homes or await approval.

In short, a mortgage rate hold helps you manage interest rate changes, letting you focus on buying a home without worrying about rising rates.

Several key factors influence mortgage rates in Ontario, and understanding these can help you anticipate potential changes and make informed borrowing decisions. Here’s a breakdown of the primary factors:

1. 1. Bank of Canada Benchmark Interest Rate: The Bank of Canada (BoC) sets the overnight rate, which is the interest rate at which major financial institutions borrow and lend short-term funds among themselves. This rate directly impacts mortgage rates across the country, as lenders adjust their own rates based on the BoC’s decisions.
2. 2. Economic Conditions: When the Canadian economy is strong (e.g., with low unemployment and high consumer spending), interest rates often rise to control inflation. Conversely, if the economy weakens, rates may be lowered to encourage borrowing and stimulate spending.
3. 3. Bond Yields: Fixed mortgage rates are closely tied to Canadian government bond yields, especially the five-year bond. When bond yields go up, fixed mortgage rates typically follow suit. Factors affecting bond yields include investor demand, inflation expectations, and economic forecasts.
4. 4. Credit Score and Financial Profile: Lenders offer lower rates to borrowers with higher credit scores and a strong financial profile, as they are seen as lower-risk. A lower credit score or high debt-to-income ratio could result in higher mortgage rates to offset the increased risk.
5. 5. Mortgage Type and Term: Rates can vary depending on whether you choose a fixed-rate mortgage, a variable-rate mortgage, or an adjustable-rate mortgage. Additionally, shorter-term mortgages (e.g., a one- or three-year term) often have different rates compared to longer terms (e.g., five years).
6. 6. Loan-to-Value Ratio (LTV): The LTV ratio measures how much of the home’s purchase price is financed by the mortgage. A higher down payment results in a lower LTV and often qualifies you for better rates, as the lender’s risk is reduced.
7. 7. Inflation: High inflation typically leads to higher interest rates, as central banks, like the Bank of Canada, may raise the benchmark rate to curb inflation. Lower inflation, on the other hand, tends to keep rates stable or even push them downward.
8. 8. Market Competition Among Lenders: Mortgage lenders compete for business, and some may offer lower rates or special promotions to attract borrowers. Banks, credit unions, and mortgage brokers might have varying rates depending on the competition and market demand.

These factors combined contribute to mortgage rate fluctuations, so staying updated on the economy, credit markets, and your own financial health can help you secure better mortgage rates.

Mortgage rates can change frequently, sometimes even daily, depending on various economic conditions and lender policies. Here’s a breakdown of how often mortgage rates change and the factors influencing those shifts:

1. 1. Daily Fluctuations: Lenders may adjust mortgage rates daily, especially if economic data or financial markets change significantly. Bond yields, in particular, influence fixed mortgage rates and can lead to daily changes in response to investor activity or economic news.
2. 2. Bank of Canada Rate Announcements: In Canada, the Bank of Canada (BoC) sets its key interest rate eight times a year (roughly every six weeks). While the BoC rate primarily impacts variable-rate mortgages, it can also indirectly influence fixed rates. Lenders often adjust variable mortgage rates shortly after BoC announcements.
3. 3. Market Conditions and Economic Indicators: Rates can change in response to economic indicators like inflation, employment data, or consumer spending. For example, if inflation rises, lenders may raise mortgage rates to offset the higher cost of borrowing.
4. 4. Lender-Specific Changes: Individual lenders may adjust their rates to stay competitive or in response to changes in demand. Some lenders may offer special promotions, leading to temporary rate reductions, while others may raise rates to control lending volume.
5. 5. Bond Market Movements: Fixed-rate mortgages are closely linked to bond yields, especially the five-year government bond yield. Bond yields fluctuate daily based on investor demand, economic outlook, and inflation expectations, so fixed mortgage rates can follow suit, particularly in volatile markets.
6. 6. Global Economic Events: Significant global events, such as shifts in international trade, oil prices, or geopolitical events, can affect rates. For example, if global markets experience a downturn, bond yields might decrease, leading to lower fixed mortgage rates.

In summary, mortgage rates can change frequently, often daily, due to a combination of domestic economic factors, market activity, and lender-specific adjustments. For this reason, some borrowers choose to secure a mortgage rate hold, which protects them against rate increases for a limited time while they finalize their home purchase or refinancing.

The main difference between fixed and variable mortgage rates is how the interest rate behaves over the term of the mortgage. Here’s how each type works and the pros and cons of each:

1. Fixed Mortgage Rates

• Interest Rate Stability: With a fixed-rate mortgage, the interest rate remains the same for the entire term, whether it’s 1, 5, or even 10 years. Your monthly payments stay consistent, providing predictability.
• Budget Certainty: Since your payments don’t change, a fixed rate is helpful for budgeting, especially if you prefer financial stability or want to avoid fluctuations.
• Market Influence: Fixed rates are generally influenced by the bond market (specifically the yield on five-year government bonds in Canada), as well as overall economic conditions.

Pros:

• Predictable payments throughout the mortgage term.
• Protection from rising interest rates.

Cons:

• Less flexibility if interest rates fall, as you’re locked into the rate unless you refinance, which may involve penalties.

2. Variable Mortgage Rates

• Fluctuating Interest Rate: With a variable-rate mortgage, the interest rate can change over the mortgage term based on changes to the lender’s prime rate, which is influenced by the Bank of Canada’s benchmark rate.
• Payment Options: In Canada, there are two common variable-rate structures:
• Adjustable-Payment Variable Rate: Your monthly payment changes as rates rise or fall.
• Fixed-Payment Variable Rate: Your payment stays the same, but the portion that goes toward interest versus principal varies.

Pros:

• Potential for lower interest costs if rates decline.

Cons:

• Payments can increase if interest rates rise, which may make budgeting harder.
• More uncertainty, which can be risky if you are sensitive to payment fluctuations.

Choosing Between Fixed and Variable Rates

• Fixed Rates: Best if you prefer stability and plan to stay in your home for the long term, especially when rates are expected to rise.
• Variable Rates: Suited for those who are comfortable with some risk and want the potential for savings if rates decrease or remain low.

Both options have benefits depending on your financial goals, risk tolerance, and expectations for future interest rates.