Categories
New Purchase Mortgage

Fixed vs. Variable Rate Mortgage in Canada: Which is Best for 2024?

Choosing between a fixed vs. variable rate mortgage is one of Canadians’ most significant financial decisions when buying a home or renewing an existing mortgage. With mortgage rates rising in 2024, understanding the key differences between these two common mortgage rates is critical.

This extensive guide will compare fixed vs. variable rate mortgage in Canada for 2024. We’ll cover how the two types of mortgage rates work, current market conditions, and strategies to manage the risks and maximize the rewards of each mortgage structure.

Whether you prioritize low costs, predictable payments, flexibility, or risk management, this guide will outline the pros and cons to determine which option may be best for your financial situation. Let’s dive in!

An overview of Fixed and Variable Rate Mortgage

First, let’s take a look to understand how fixed and variable rate mortgages work.

Fixed-Rate Mortgage

With a fixed-rate mortgage, the interest rate is set for the entire term and cannot fluctuate. The term is typically 6 months to 10 years, with 5 years being the most common.

This means your monthly mortgage payment will remain the same over the set term, providing stability and predictability for budgeting purposes. You know exactly how much each payment goes toward interest vs principal over the term.

Variable-Rate Mortgage

A variable-rate mortgage means the interest rate fluctuates based on the prime rate, which major Canadian banks set based on the Bank of Canada overnight rate.

Variable mortgage rates are quoted in relation to the prime rate, for example, “prime minus 0.5%.” Even as the prime rate changes, the discount or premium set at the beginning remains constant.

With variable-rate mortgages, the interest portion of your monthly payment changes as rates fluctuate. The total monthly payment may remain the same, go up, or go down.

Current Rates for Fixed and Variable Mortgage in Canada 2024

As of June 2024, the average five-year fixed rate was 5.04% and five-year variable rates are around 1% higher than comparable fixed rate offers.

(Source: https://www.mortgagesolutions.co.uk/news/2024/06/05/average-mortgage-rates-down-year-on-year-rightmove/)

Based on the latest inflation data and economic projections, the Bank of Canada has lowered its key interest rate to 4.75 per cent, marking the bank’s first rate cut since March 2020. This would bring variable mortgage rates notably closer to fixed-rate levels.

(Source: https://www.cbc.ca/news/business/bank-of-canada-key-interest-rate-june-5-1.7225076)

Fixed vs. Variable Mortgage Popularity in Canada

Historically, fixed-rate mortgages have been more popular in Canada. The stability and payment consistency provide peace of mind for many homeowners.

However, when variable rates dropped to record lows in 2021, they surged in popularity, the majority (53%) of Canadians shifted their preferences in
interest rate terms, opting for variable interest rates in the second half of 2021 [Source].

As the Bank of Canada began aggressively hiking rates in 2022, fixed rates regained dominance. By the end of 2022, 69% of mortgage holders had fixed-rate terms [Source].

The latest CMHC survey shows that the percentage of consumers who opted for a fixed rate increased from 66% in 2023 to 69% in 2024, and 23% of mortgages contracted are variable rates [Source].

Based on current trends, fixed rates are once again the clear preferred option, though variables still hold appeal for certain borrowers.

Key Differences Between Fixed vs. Variable Rate

Differences Between Fixed vs. Variable-Rate Mortgage
Differences Between Fixed vs. Variable-Rate Mortgage

There are several key differences between fixed vs. variable-rate mortgages that you need to understand when deciding between the two options:

Interest Rate

  • The interest rate on a fixed mortgage is based on Government of Canada bond yields. It is generally higher than variable mortgage rates for the same term to compensate lenders for the reduced risk and guarantee the rate for extended periods.
  • Variable mortgage rates tend to be lower than fixed rates in a stable environment. However, as this type of rate fluctuate based on changes to the prime rate, they carry the risk of rising interest costs if the prime rate trends significantly upwards.

Monthly Payments

  • With a fixed-rate mortgage, your monthly mortgage payment stays the same over the term, allowing reliable budgeting.
  • For variable-rate mortgages, your payment amount can increase or decrease as interest rates change and require budget adjustments.

Impact on Amortization

  • With a fixed-rate mortgage, the portion of your payment going toward principal versus interest stays consistent throughout the term. This allows reliable projections for when the mortgage will be paid off.
  • When variable rate rise, more of your payment goes toward interest and less to principal. This slows the paydown of the mortgage balance. The unpredictability of variable rate impacts makes determining your payoff date more difficult.

Those who value a precise payoff schedule may prefer the consistency of fixed-rate mortgages. Borrowers focused on minimizing costs, in the long run, may accept the variability of timelines with a variable rate.

Penalties for Breaking Contract

  • Fixed-rate mortgages charge high penalties, often equivalent to several months’ interest. With fixed-rate mortgages, you cannot take advantage of lower rates without expensive penalties.
  • Most variable rate mortgages only charge a penalty of 3 months’ interest if you break your term [Source]

Ability to be assumed and ported

Most fixed-rate mortgages are assumable and portable. However, variable-rate mortgages don’t qualify as assumable/ portable mortgages. This means if you sell your home to buy a new one or transfer it to the new buyers, you cannot take over the existing mortgage at its current terms.

Risk Profile

  • Fixed-rate mortgages carry lower risk but may cost more over the long run.
  • Variable rate mortgages carry higher risk but may save substantially on interest costs long-term.

Understanding these key differences will let you determine which mortgage structure best suits your financial situation and preferences.

Pros and Cons of Fixed vs. Variable Mortgage

Pros and Cons of Fixed vs. Variable-rate Mortgage
Pros and Cons of Fixed vs. Variable-rate Mortgage

Pros and Cons of Fixed-Rate Mortgage

Here are some of the top benefits of fixed-rate mortgages in Canada

ProsDescription
Payment stability– Monthly payments remain the same for the entire mortgage term.
– Allows reliable budgeting and financial planning.
Protection from rising interest rates– Sheltered from rate hikes that would increase costs with a variable mortgage.
– Peace of mind knowing payments cannot go up.
Easier to qualify– Fixed payments make it easier to pass affordability calculations for lenders.
– Allows qualifying for larger loan amounts.
Predictable payoff schedule– Know exactly when the mortgage will be paid off if all payments are made.
– Can calculate how much goes to interest vs principal each month.
Benefits of fixed-rate mortgages

While fixed mortgages provide stability, they do come with some drawbacks to consider as well

ConsDescription
Higher interest costs over the long term– Historical data shows fixed rates cost more in total interest over time.
– Must refinance or renew to get lower rates if they drop.
Miss out if rates drop– No ability to take advantage of the rates decline without breaking contract.
High penalties for prepayment– Early payout penalties equivalent to months of interest if breaking contract.
– Makes it very expensive to refinance or move before maturity.
Inflexibility– Cannot renegotiate lower rates or payments when market rates drop.
– Must wait for renewal period to adjust terms
Drawbacks of fixed-rate mortgages

Pros and Cons of Variable-Rate Mortgage

Variable-rate mortgages also offer unique advantages, particularly for borrowers comfortable taking on some risk for potential rewards.

ProsDescription
Lower interest costs over long term– Historical data shows lower total interest paid over extended periods.
– Take advantage of prime rate drops without needing to renegotiate.
Take Advantage of Falling Rates– Interest rate and payments automatically go down when prime rate drops.
– No action needed to take advantage of lower rates.
Flexibility to lock in fixed rate– Can convert to a fixed-rate mortgage at any time without penalty.
– Useful if variable rates become very low.
Lower penalties for breaking contract– Typically only need to pay back 3 months of interest if breaking contract.
– Makes it easier to refinance or move compared to a fixed penalty.
Benefits of variable-rate mortgages

On the flip side, variable-rate mortgages also come with a unique set of risks and considerations.

ConsDescription
Unpredictable monthly payments– Payment amounts fluctuate based on changes in prime rate.
– Makes reliable budgeting and planning difficult.
Risk of higher costs if rates rise– Interest and payments rise if prime rate trends upward.
– Reduces overall mortgage affordability.
More challenging to qualify– Variable payment volatility means lower maximum approval amounts.
– Lenders stress test qualification at much higher rates.
Uncertainty and stress– Psychological burden of unpredictable rate and payment fluctuations.
– Creates anxiety for borrowers who highly value stability.
Potential for longer amortization– More interest and less principal if rates rise significantly.
– Increases timeframe to pay off mortgage.
Drawbacks of variable-rate mortgages

Determining Which Mortgage Structure is Right For You

Which Mortgage Structure is Right For You?
Which Mortgage Structure is Right For You?

With the pros and cons of fixed vs. variable-rate mortgage spelled out, you’re ready to determine which option may be the best fit for your unique situation.

Here are some examples of situations where a fixed or variable mortgage may be preferable:

Fixed-rate mortgages tend to be better for

  • First-time homebuyers who value payment stability while they establish themselves.
  • Borrowers on tight budgets with little wiggle room if payments increased.
  • People with anxiety about interest rates and payment unpredictability.
  • Someone who plans to move in the next 2-3 years before renewal.
  • An investor seeking steady and predictable mortgage payments.

Variable-rate mortgages tend to be better for

  • Borrowers who watch rates closely and are ready to act on opportunities.
  • Those with flexible budgets that can handle potential payment increases.
  • Homeowners who plan to stay long-term past renewal periods.
  • Investors with multiple properties looking to minimize overall interest costs.
  • Anyone looking to refinance or move if rates decline meaningfully.
  • Those comfortable with some risk in exchange for potential savings.

In many cases, a hybrid approach may be appropriate, such as splitting between fixed and variable rate products. This balances the desire for stability while still capitalizing on variable rate advantages.

Managing Risks of Variable Mortgages

Variable-rate mortgages have inherent risks of rising costs and unpredictable payments as the prime rate changes. However, borrowers can use strategies to mitigate these risks.

  • Make Lump Sum Prepayments When Rates Are Low

Making lump sum prepayments when variable rates are low allows you to pay down more principal and offset potential payment increases if rates go up later.

  • Choose a Product With Flexible Prepayment Options

Opting for variable products that allow unlimited prepayments gives you the most flexibility to pay more when affordable.

  • Monitor Rates and Lock Into Fixed When Low

To protect your savings, pay attention to rate trends and lock into a fixed-rate term if variable rates drop to favourable lows.

  • Consider Shorter-Term Fixed Rates Initially

One strategy is to start with a 1-3 year fixed term to provide short-term stability while retaining flexibility.

Tips to Get the Best Mortgage Rate

  • Whether you choose fixed vs. variable-rate mortgages, make sure you get the best possible rate for your situation by shopping around:
  • Compare mortgage rates from multiple lenders and brokers. Rates and discounts can vary significantly.
  • Negotiate with lenders for better rate discounts and terms. Don’t be shy to ask for a better deal.
  • Work with a mortgage broker who can access wholesale bank rates unavailable to the public.
  • Time your mortgage shopping when rates are lower, typically in the spring and summer.

Getting the lowest rate will maximize your savings and make your mortgage more affordable over the long run, regardless of whether you choose fixed or variable.

Key Takeaways: Fixed vs. Variable Rate Mortgage in Canada

FactorFixed Rate MortgageVariable Rate Mortgage
Interest rateRemains the same for the term
Usually higher than variable
Fluctuates based on prime rate
Usually lower than fixed
Monthly paymentsDo not changeCan go up or down
QualificationOften easierCan be harder
FlexibilityAssumable and PortableCannot be Assumed and Ported
BudgetingMore predictableRequires adjustments
Prepayment penaltiesHigh penaltiesLower penalties
Interest rate changesCannot benefit from dropsCan benefit from declines
CertaintyHigh certaintyUnpredictability
Key differences between Fixed vs. Variable-Rate Mortgage to Consider
  • Fixed-rate mortgages offer payment stability and certainty. Variable-rate mortgages provide flexibility and potential interest savings over the long run but carry risks of unpredictable costs.
  • As of 2024, fixed-rate mortgages are more popular again after a variable rate surge in 2021-2022 when the prime reached record lows.
  • Current data indicates prime rate cuts may come in mid to late 2024. This could bring variable mortgage rates closer to fixed-rate offers.
  • To manage risks, variable mortgage holders can make prepayments when rates are low and lock into fixed terms when variable rates drop.
  • Assess your unique risk preferences and financial situation. Splitting between mortgage types can provide a balanced approach.

Conclusion

Deciding between a fixed vs. variable-rate mortgage is an important decision that requires considering your unique financial situation and risk tolerance.
While fixed rates provide stability, variable rates offer flexibility and potential savings. There is no one-size-fits-all answer.
The best way to determine which structure suits your needs is to speak with a mortgage professional. At Best Mortgage Online, our expert mortgage advisors take the time to understand your complete financial picture, goals, and concerns. Based on a complete analysis, we guide you to the ideal mortgage structure. Contact us now to start the process and ensure you make the right mortgage decision.

FAQs

How to decide between a fixed or variable-rate mortgage?

Assess your risk tolerance and need for payment stability. Calculate your budget at potentially higher variable rates. Consider splitting between fixed and variable products. Consult an expert mortgage advisor.

What is the difference between fixed and variable-rate mortgages?

Fixed mortgage rates stay the same for the term, while variable rates fluctuate with the prime rate. Fixed offers certainty but costs more long-term. Variable carries risk but can save substantially.

Should I choose a variable-rate mortgage in 2024?

Variable-rate mortgages offer savings potential in 2024 as the Bank of Canada is forecasted to cut rates. However, variable rates come with payment uncertainty. Assess your situ

Penalties for breaking a fixed vs variable mortgage?

Variable mortgages typically only have a 3 month interest penalty, making it easier to break the term. Fixed mortgages charge higher penalties.

Can you convert a variable to a fixed-rate mortgage?

Yes, variable rate mortgage holders can lock into a fixed rate at any time without penalty. This provides helpful flexibility.

How can I manage the risks of a variable-rate mortgage?

Make lump sum payments when rates are low, choose flexible prepayment options, monitor rates, and lock into fixed terms strategically to offset variable rate risk.

Who should choose a fixed vs. variable-rate mortgage?

Fixed rates work for those wanting payment certainty, and variable rates work for those comfortable with some risk and who want to maximize potential savings from rate declines.

How do I find the best mortgage rate in Canada?

Compare rates from multiple lenders and brokers. Negotiate for the best discounts and terms. Consider using an experienced mortgage broker to access exclusive rates.

Article Sources

At Best Mortgage Online, the statistics we cite come from trusted governmental and industry organizations to guarantee accuracy.

  1. Variable vs Fixed Mortgage Rates – truenorthmortgage.ca
  2. Variable vs Fixed Mortgage: The Ultimate Guide for 2024 – altrua.ca
  3. Fixed vs. Adjustable-Rate Mortgage: What’s the Difference? – investopedia.com
  4. What’s the difference between fixed and variable rate mortgages?- stories.td.com
  5. Fixed and variable rate mortgages – rbcroyalbank.com
Categories
Mortgage Renewal/Switch

Will Your Mortgage Renew Automatically in Canada?

In Canada, when a borrower takes out a mortgage loan to purchase a property, the loan is typically secured by a written agreement called a “Mortgage.” The borrower agrees to repay the mortgage using monthly payments consisting of interest and principal. The period used for repayment of principal is referred to as the term.

In most cases, borrowers will sign a mortgage for a term of 5 to 25 years. However, once the borrower has paid down the principal to 80% of the property’s original value, he may be able to renegotiate his loan with his lending institution to obtain lower monthly payments.

What Does Mortgage Renewal Mean?

Renewing a mortgage means that the borrower will take out another written agreement with the lending institution, paying off the original loan and signing up for a new term to pay down the principal. Each time this is done, borrowers may be charged fees to obtain their new mortgage.

When Does Mortgage Renewal Occur?

When you renew your mortgage depends on whether or not it has an automatic renewal clause or “option.” At least 30 days before the expiry of your current mortgage, you should receive notification from your lending institution regarding its renewal policy. Borrowers are typically informed if their mortgages will automatically renew subject to certain conditions. These conditions include:

  • The property value increases;
  • The creditworthiness of the borrower;
  • The property type; and,
  • Changes in market conditions.

Suppose your lender does not include an automatic renewal clause in its mortgage agreements. In that case, borrowers are required to make arrangements with their lending institution before the expiry date of their mortgages to obtain new loan terms. Failure to do so may result in a default on the original agreement.

Borrowers who fail to pay their outstanding debts will be subject to foreclosure proceedings by their lenders. They will also lose any accumulated equity in the property, which generally reverts to the lending institution.

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What Happens When Your Mortgage Expires?

If you have a fixed-rate term with no options or renewals attached, your mortgage will expire at maturity. That means that your lender cannot ask you to renew or extend the term of your agreement, and for this reason, a fixed-rate mortgage is a good choice if you think that you might want to move from the property in question before the end of the term.

When Does Your Mortgage Renew Automatically?

During the fixed-rate term of your mortgage, you may wonder what will happen to your rate and monthly payments if they aren’t changed when your agreement expires. That is a good question and one that your lender’s automatic renewal clause can answer.

When Does Your Mortgage Not Renew Automatically?

Most mortgages contain an automatic renewal clause with terms that range from six months to five years. The length of time will vary depending on the type of property involved, how much has been paid off on the existing loan, the borrower’s creditworthiness, and market conditions.

For example, borrowers with “substantial equity” in their homes may have a renewal term of 10 years, while those with no equity usually have to renew for five. With this being said, the bank will not provide a more extended renewal option than the borrower needs or wants.

Borrowers who want a definite expiry date can choose a five-year option and then renegotiate the terms of their loans at maturity. Those who prefer to pay off their mortgages earlier can opt for shorter terms, such as 18 months or two years.

What Happens During Your Mortgage Renewal?

Once your mortgage has been automatically renewed, you will be required to sign another agreement with your lending institution. This document will list all of the original loan details along with the new interest rate, repayment date, amortization period, and other information.

The bank will not automatically save you money on your new rates or terms. To receive the best possible renewal package from your lender, you must call the institution during this time to negotiate a more competitive interest rate and term.

Let’s say that your mortgage is renewed at a higher rate than that on the original agreement. Then, it may be possible for you to refinance with another financial institution within a short period following its expiration. 

That particular strategy may spare you some of the higher associated costs involved with breaking before maturity, as well as those incurred from being charged an early termination fee by your current lending institution.

How Can Your Mortgage Renew Automatically in Canada?

If you need a new mortgage, consider how it will renew automatically in Canada. Some lenders offer personalized renewal terms tailored to your specific requirements. These may include:

  • The ability to lock in interest rates;
  • Mortgage renewal guarantees; and,
  • Loans with flexible terms.   

Pros and Cons of Automatic Mortgage Renewal

There are advantages and disadvantages for borrowers who choose to have their mortgages automatically renewed. For example, suppose you are out of the country or plan on moving far away from your property before the end of your fixed-rate term. In that case, automatic renewal may be beneficial because it reduces one more element that could prevent you from renewing.

On the other hand, if you expect rates to fall over the next few years, it might make sense for you not to renew your mortgage but instead opt for a shorter term to take advantage of lower interest rates. In this case, opting out of automatic renewal will give your lender less bargaining power when terms with you at renewal time.

The Bottom Line On Automatic Mortgage Renewal

Keep in mind that there may be a cost involved with breaking your mortgage agreement before maturity, even if your lender does not renew it automatically. However, you can avoid this expense by calling your lender before the automatic renewal date and negotiating a better deal.

If you are looking to acquire home loans, more information on Mortgage in Canada, loan rates in states of Canada, etc. let Best Mortgage Online help you.

Categories
Mortgage Refinance

Three Important Aspects to Look at Before Refinancing

Are you a mortgage holder and looking to make changes to the original loan? Refinancing should be the answer. This approach gives you the flexibility to take charge of your mortgage while adding instant funds into your budget. 

Homeowners can use the new loan to lower the interest rates, pay off the mortgages quickly, and turn home equity into cash. However, make sure that you switch to the appropriate loan to make the most of refinancing. 

Understanding the process thoroughly might help you know whether switching to a new loan is the right decision or not. There are multiple factors you need to keep in mind while refinancing, here’s the guide to the three most critical aspects every borrower must look at before adopting this approach. 

A brief overview of refinancing

Before jumping into the list of essential elements, it’s vital to learn more about refinancing to understand better. As the name suggests, refinancing replaces an existing debt obligation with another debt with new terms and conditions. 

This approach lets you swap out your old, higher interest rate for a new one with lower rates. The terms and conditions for refinancing are based on several economic factors and may vary from one country to another. 

For instance, you can refinance to borrow up to 80% of the value of your home in Canada. If your current mortgage is just 50% of your home’s value, you can refinance to borrow the remaining 30% to complete the mortgage loan amount to 80% of the home value. 

This approach is mainly adopted for three significant reasons: 

● To change your mortgage type

● To borrow more money

● To get a lower interest rate

3 major aspects to consider before refinancing

Now that you are well-acquainted with the refinancing concept, let’s unveil the three significant elements to consider before using this approach. Please read them carefully to avoid any last-minute surprises.

The Cost of Refinancing

Refinancing isn’t free; hence, the borrowers must consider the cost before switching to the new loan. Depending on the loan, you have to pay various additional charges, including mortgage registration fees, legal fees, home appraisal fees, and more. The borrowers can avoid the mortgage discharge fee if they continue with the same lender. 

Additionally, if you refinance before your term is over and choose the same mortgage rate, you’ll be charged penalties. However, you can avoid them by blending and extending your mortgage rate that mixes your new rates with the existing ones. These fees can add up to hefty amounts depending on which fees apply to you while refinancing.

The Interest Rates

Refinancing your mortgage equals applying for a new loan; therefore, it is mandatory to look at the interest rates before making a switch. Unarguably, the most important reason for adopting this approach is to get a better interest rate. 

Hence, the borrowers should opt for refinancing if there is a considerable difference between the interest rates, making the whole process worthwhile. A difference of a few to some percentage points can make a big difference while saving tens of thousands of bucks in the overall repayments.

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Check Your Loan-To-Value Ratio

The loan-to-value (LTV) ratio is yet another critical factor to consider before refinancing your mortgage. This value mainly looks into how much money you take out to buy a home versus the home’s actual value. 

LTV is one of the primary ways lenders use to calculate the level of risk associated with the approval of your mortgage. Hence, the borrowers must present a better LTV ratio to get a loan faster. The more money you invest into the house, the more equity you have in it—also, the lower your LTV, the better the chances of securing good loan terms. 

As you pay off the mortgage, you build up equity in your home. This is the difference between the value of the property and the remaining balance of your mortgage. Your home equity will rise as you pay your mortgage. 

In Canada, you can refinance to borrow up to 80% of the home’s value. For instance, you owe a $200,000 mortgage on a $400,000 home. It means that your current loan-to-value ratio is 50%. Since you can only borrow up to 80% of your home, you can refinance to borrow an additional amount of $120,000 (30% of $400,000)

If you have two mortgages, you may also use a refinanced amount to consolidate the second mortgage with your first one. 

Other factors to keep in mind before refinancing

In addition to the elements listed above, there are a few more factors that you should consider before refinancing your mortgage. 

● Check if your credit rating is good enough

● Determine the good time to refinance 

● The primary reasons for switching to a new loan

● Know your Debt-To-Income (DTI) ratio. 

● Don’t forget the taxes

The Bottom Line

Refinancing your mortgage is a big decision; hence take ample time and conduct in-depth research before making a switch. A mortgage refinance is best suited to homeowners that home equity is looking to borrow a massive amount at a fixed rate. 

However, it might not be a good option for borrowers who need quick access to money or looking to borrow small amounts at a time. This approach comes with both pros and cons; therefore, you should keep all aspects in mind before transitioning from one loan to another. The decision is for you to make, so make it precise.

For more mortgage advice and loan rates, give us a call at 1-855-567-4898 (toll free) – Best Mortgage Online.

Categories
New Purchase Mortgage

How to Pick a Mortgage Lender in Canada: 10 Questions to Ask

If you’re a new homeowner, a mortgage is a huge commitment. Like any contract, it’s essential to know the details of what you are signing up for. After all, mortgage rates change frequently, and if you don’t know the particulars of the mortgage agreement, this can cost you money.

Understanding Mortgage in Canada

In Canada, there are a few different mortgage options:

  • Conventional mortgage: A mortgage that requires the borrower to make mortgage payments to repay the loan over time
  • High Ratio Mortgage: Type of mortgage that requires the borrower to make mortgage payments to repay the loan over time and requires the borrower to pay a monthly mortgage insurance premium.
  • Second/Third Mortgage: For one who has already signed another mortgage agreement with an institution.

The mortgage lender you use will significantly affect the mortgage rates and terms you receive. Here are some tips on choosing your mortgage provider:

  • Talk to family or trusted friends
  • Ask your real estate agent for recommendations
  • Shop around online through mortgage brokers in Canada
  • Decide if you want to go through a mortgage lender or a mortgage broker

What Makes a Good Mortgage Lender?

Your lender will be your single point of contact for the mortgage agreement as far as mortgage providers go.

You want to find someone who makes you comfortable throughout the mortgage process and is reliable. Some mortgage brokers offer competitive rates and products, while some lenders earn their money solely by originating mortgages.

Some mortgage lenders or brokers offer their mortgage insurance, while others link you with mortgage insurers. It is essential to know that mortgage rates can change quickly, so it’s vital to know if your mortgage provider will be able to match the best mortgage rates in Canada.

Identifying Your Mortgage Lender

The mortgage broker is a professional who helps people find a mortgage lender and helps them through the process of getting a mortgage.

Mortgage lenders can range from banks to credit unions and trust companies, among others. When it comes time for changes, you’ll want someone with experience when it comes time for changes, such as renewals or payment amount changes. During financial hardship, the last thing you need is an inability to make adjustments with your mortgage lender without incurring fees.

Typically, mortgage lenders will provide a mortgage broker with a mortgage rate and mortgage insurer, or they may give them a combination of both. As a result, the mortgage lender can offer conventional and high ratio mortgages.

A mortgage broker can help you find the best mortgage rates available in Canada, regardless of whether they’re from a bank, credit union, or mortgage insurer.

There are two types of mortgage brokers:

  • Sales-Based Mortgage Broker: A mortgage broker whose primary source of income is originating loans and collecting commission for doing so.
  • Non-Sales Based Mortgage Broker: A mortgage broker whose primary source of income is not originating loans and collecting commission for doing so.
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10 Questions You Need to Ask Your Mortgage Lender

Different lenders offer different mortgage plans with these options. Here are the top 10 questions to ask mortgage lenders in Canada before signing on any dotted line:

What is your mortgage rate?

This is an obvious question, but it gives you a rough idea of what kind of mortgage you can afford. If mortgage rates are low (less than 5%), then mortgage rates are usually lower too.

What is your mortgage penalty?  

This question will tell you what the lender charges if you need to break your mortgage agreement early or if mortgage rates drop below what you initially negotiated been. For example, some lenders charge an entire three-month interest while others only charge one month’s interest to break the mortgage agreement early. Failing to pay your mortgage penalty can also negatively affect your credit rating.

How will mortgage rates change over time?

Different mortgage lenders use different methods to calculate mortgage rates, so it’s essential to compare the mortgage terms of each lender. For example, some lenders offer “fixed” mortgages that don’t change for a set period, while other mortgage rates vary based on the prime rate or other lending rates.

What penalties do you charge if rates rise during my term?

The mortgage lender should be clear about whether they have a penalty for your mortgage rising in interest before it expires. This way, you’ll be able to make an informed choice about mortgage rates.

How often is my mortgage interest rate reviewed?

Some mortgage lenders will review mortgage rates every month, while others only review mortgage rates every 3-5 years. You should know how often your mortgage will be reviewed to avoid higher mortgage rates when you renew your mortgage agreement.

Can I lock my interest rate for a set period?

Most mortgage lenders will offer you the chance to “lock in” mortgage rates before they change. That is great if you’re planning to buy a house and want to know your mortgage costs, but it also helps prevent mortgage rates from increasing.

How much do mortgage payments increase over time?

Depending on the mortgage lender, mortgage rates can increase by 5% or more after a few years. So make sure you’re aware of how mortgage rates might change over time so that you’re not surprised later on.

Can I pay off my mortgage early?

Some mortgage lenders will let you pay off your mortgage early, but there’s usually a charge for this. If possible, try to find mortgage lenders who don’t charge early mortgage payment penalties.

What type of mortgage do you offer?

Different lenders offer different mortgage plans, so make sure the mortgage lender knows what kind of mortgage you’re looking for. For example, mortgage lenders might offer mortgage plans that allow you to pay off your mortgage early without penalty, and other mortgage rates might not provide this option.

Will I be charged mortgage application fees?

Most mortgage lenders will charge a mortgage application fee when applying for mortgages, but some mortgage lenders may also charge mortgage application fees when mortgage rates drop. This way, you’ll know what mortgage lenders will charge before you apply for a mortgage.

Closing Thoughts

Other mortgage lenders may offer other mortgage plans, so it’s crucial to shop around for mortgage rates until you find the best mortgage lender. Some mortgage lenders will charge a monthly mortgage administration fee and a mortgage penalty fee if your mortgage rate rises during your term.

Best Mortgage Online can also help you acquire a mortgage, refinance a mortgage in Canada, … with the best rates on the market. Call us and talk to our agents are available at 1-855-567-4898 (toll free).

Categories
New Purchase Mortgage

Applying for Mortgage in Canada: A Step-by-Step Guide for Homebuyers

The dream of homeownership in Canada is alive and well. According to a recent Royal LePage survey, it’s what nearly half of Canadians older than 25 years old want. However, today’s housing market can be very different from what you have known before if you come from a country with a subsidized or socialized housing sector. 

The purpose of this guide is to give you an understanding of the mortgage process in Canada and help you choose a home that fits your budget.

If you are reading this, there’s a good chance that your new life in Canada starts with buying a house. In fact, for many people, it’s the biggest purchase they will ever make, so it’s essential to find out as much as possible. This article will help you through the process and eliminate some of your concerns about mortgages in Canada.

Understanding Mortgage Terminology in Canada

Before you start the process of applying for a mortgage, there are some key terms you should understand. Once you know what they signify, it will be easier to decipher information about mortgages provided by banks, real estate agents, and other professionals who deal with them daily.

Some might sound familiar, while others could be entirely new for you. Below are some of the essential terms you should know before applying for a mortgage.

  • Principal: The principal is the amount of money borrowed, not including interest or fees. Therefore, if you borrow $300,000 at 5% p.a., your principle is $300,000.
  • Interest Rate: Interest is the money charged for borrowing your money. Most loans have an interest rate, usually expressed in percentage per year.
  • Fixed-Rate Mortgage: The interest rate you sign up for in your mortgage agreement will remain unchanged throughout the term of your mortgage.
  • Variable-Rate Mortgage: Variable-rate mortgages are where the interest rate is not fixed and may fluctuate according to a predetermined formula.
  • Collateral: Collateral refers to any guarantee you provide if you cannot make your monthly payments or default on any of the terms and conditions in your mortgage agreement. For example, a common form of collateral has a second property that you own and can be sold to cover the unpaid portion of your loan.
  • Mortgage Term: Most mortgages in Canada are closed-term (have a predetermined term that cannot extend) and fully amortized, which means you make equal monthly payments of principal and interest to reduce your balance.
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Types of Mortgages

When you go through purchasing a home, the lender will consider your financial position (income, credit rating, debts), the type of property you plan to buy (for example, single-family dwelling or condo), and your timeframe for repayment. Once they understand all of these parameters, they will suggest different mortgages based on their requirements.

Depending on your needs, your lender can offer you a variety of mortgages with different terms and conditions depending on your financial situation. However, some of the most common types that are recommended for first-time buyers are:

Conventional Mortgage

A conventional mortgage does not require any additional insurance coverage to assure the risk of default. In addition, homestead protection is automatically included in this type of mortgage which means you cannot be forced to sell your home in case of default.

High Ratio Mortgage

A high ratio mortgage has a down payment requirement between 5% and 19.99%. In Canada, most lenders require you to have at least 5% of the purchase price of the cash home, with the remaining amount financed through a mortgage loan.

Mortgage Loan Insurance

In case you have a down payment of less than 20% for purchasing your home, your lender will require additional insurance coverage to protect against default. Mortgage loan insurance protects lenders against loss in cases where mortgage payments are not made.

Conventional High Ratio Mortgage

Conventional high ratio mortgage is a recommended type of mortgage for first-time buyers that features a down payment of more than 5% with the balance financed through a mortgage.

Mortgage Pre-approval Process

Once you have finally found the perfect property for you and discussed the price with the real estate agent, it’s time to approach a lending institution to pre-approval your mortgage. Your lender will do a complete assessment of your financial position and ask all the necessary questions to determine how much money they are willing to lend you.

The lender will use different ratios to determine your eligibility for a mortgage. For example, your gross household income ratio compared to your fixed monthly debt payments, including the new home purchase, should not be more than 32%.

The pre-approval process is usually completed within 48 hours, depending on what type of property you are buying and whether it requires additional approvals from a strata board or not.

Mortgage Application Process

Once you have been approved for a mortgage, the lender will provide you with a document called a ‘vesting letter’ that will include your name and the property address, as well as the maximum amount they are willing to lend you. Next, go ahead and sign a purchase agreement with the seller and ask your real estate agent to forward the listing information to your lender.

You will have to provide the lender with copies of all documents related to the sale of your home, including any offers you have received from other buyers. The offer copy must include how much money they are willing to pay for the property and the closing date. Lenders also require a copy of your last mortgage statement to determine what kind of terms you had on your previous mortgage and how much equity is available in your home.

They will then provide the necessary funds to the vendor (seller), who will pay off their existing mortgage with their financial institution. All that’s left is waiting for the title transfer and your mortgage funds to be released. It usually takes between 15 and 45 days, depending on what province or territory you buy real estate.

Closing Thoughts

There’s no such thing as a dumb question in buying your first home. Do not hesitate and ask away if you feel like you are bothering the lender with too many questions. Also, you can expect some surprises since things always take longer than expected, and the lender will probably ask you for additional documents to be submitted.

Best Mortgage Online can help you search for home loans in Canada, contact us at 1-855-567-4898 (toll free).