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The Smart Homeowner’s Guide To Getting The Best Mortgage Rates In Ontario, Canada

the smart homeowners guide

How To Make Ontario’s Mortgage Lenders Work For You

The Ontario property market is trending upwards these days, and mortgage rates across Canada are still near  historic lows. Although it’s important to lock in a low rate before there is an uptick in borrowing cost, you’ll want to make sure that you take some time to pull out all of the stops to get the best mortgage deal possible. 

Before you visit your local bank branch to negotiate, however, it’s important to educate yourself on today’s mortgage trends. Review the FAQ below to learn about the difference between fixed rates and variable rates, why it’s important to always compare multiple offers, and how to avoid hidden traps and fees that are often buried in your loan terms.

What are the current 36-month and 72-month fixed rates in Ontario?

For most borrowers, today’s three-year fixed rates generally fall between 1.99% and 2.24%. Today’s five-year rates, on the other hand,  are around 1.99% to 2.95%. Since interest payments are calculated by compounding the total borrowing cost over the mortgage period and amortizing these costs monthly, you can usually increase the length of your loan without increasing the rate very much. However, a slightly higher interest rate on a significantly longer loan may mean much higher total borrowing costs.

What is the most popular rate term in Canada?

More than 60% of Canadians who take out a mortgage opt for a five-year term. Although a five-year term is Canada’s most popular mortgage arrangement, younger Canadians have also started taking out more mortgages with terms between two and four years recently.

How much can I save by comparing fixed rates in Ontario?

Banks and other financial institutions are always competing to offer the lowest mortgage rates available, so you’ll want to get quotes from multiple lenders before you make a final decision. Every lender has their own set of parameters and weighting factors that determine the offer they can give you, so the quoted rates that you receive can vary by 100% or more in some instances.

Some local credit unions, for example, may be able to offer you a three-year fixed rate of just under 2% in today’s lending environment. Large banks on the other hand, may only offer you a three-year fixed rate of 2.85%. 

It’s important to remember that lenders exist to serve you. If you aren’t thrilled with the first few offers that you receive, then it’s a good idea to keep shopping around until you find a mortgage package that you’re happy with. 

If you have a pre-existing relationship with a mortgage banker, then it’s certainly a good idea to let them know you’re in the market for a loan as soon as possible. Your mortgage banker will expect you to be comparing different offers, so don’t be shy about providing updates on the various quotes that you are receiving. If you can prove that other lenders view you as a worthy prospect for a loan, then your existing banker may be able to match or beat any of the best quotes that you’ve gotten.

Why compare fixed rates with multiple lenders?

Even if you receive an identical mortgage rate quote from two different lenders, the total expenses associated with your loan can be wildly different. Closing costs, origination fees, and other servicing costs can all add up, so you’ll want to use a mortgage calculator to carefully analyze every aspect of each offer that you receive.

Are you planning on paying your mortgage off early? If so, then you need to find out if your loan offer includes any prepayment penalties.

With all of that said, it’s likely that the offers you receive from different institutions will have different fixed rates and different terms. Lenders generally take all of the following factors into account, but they don’t always weigh these factors in the same way:

  • What is your employment history? Have you demonstrated an ability to increase your earning power every year? 
  • How large is your personal balance sheet? Do you have credit card debt or other liabilities that could get in the way of you being able to successfully repay your mortgage?
  • What percentage of your current income will your mortgage payments represent?
  • How large is the down payment that you are willing to make?
  • Do you have a consistent history of handling debt responsibly?
  • What is the current level of demand for the type of home that you are looking to purchase? Since your mortgage will be secured solely by the value of your home in most cases, lenders want to make sure that they will be able to sell the home and recoup their original capital if they need to foreclose in the worst-case scenario.

In addition to the factors listed above, lenders also have their own internal metrics that they need to satisfy. If a lender currently has several non-performing mortgages on their books, then they may need to offer you a higher rate as a way of reducing their overall risk.,  Another lender in the same area may currently have a much stronger balance sheet and be able to offer you a much more competitive rate. Situations like these are why it’s always worth your time to compare rates and offers from as many lenders as you can find.

Why are fixed rates different than variable rates?

Since variable rates have a much different risk profile than fixed rates, variable rates are usually much lower. When you agree to take out a mortgage at a variable rate, you are essentially expressing a viewpoint on which direction you think interest rates will move during the duration of your loan.

If you choose a variable rate for your mortgage and interest rates subsequently fall, then you’ll end up saving money as compared to a fixed-rate loan. In a situation where interest rates rise, however, you can be held liable for more money. Since consumer mortgage rates can only fall by a limited amount but can theoretically keep rising with no ceiling, opting for a fixed rate can provide financial stability and peace of mind.  

From a lender’s perspective, the situation is almost the exact opposite. If a lender gives you a mortgage with a fixed rate and interest rates go higher than they are right now, then that lender has lost the opportunity cost of lending the money they loaned you to somebody else at the higher rate. With a variable rate mortgage, on the other hand, the lender has potential limited losses and the possibility of larger gains in terms of the increased interest payments that you will be responsible for paying them. Thus, many lenders offer lower variable rates in an effort to entice you into taking on increasing amounts of risk.

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