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How Mortgage Rates are Determined

Last updated 7 years ago

Mortgage rates have been exceptionally low in Canada for the past several years. Most economic analysts expect them to rise during this year and next year. But what exactly affects how mortgage rates are determined and how they change for the home buyer?

There are two types of home mortgages, variable mortgages and fixed rate mortgages.

Variable Mortgage Rates

The Bank of Canada’s key interest rate influences the prime rates of commercial banks. For the most part, these prime rates determine what your variable mortgage rate will be. If the Bank of Canada decides to raise the key interest rate, as it does when it is trying to fight inflation, the variable mortgage rate will almost always rise. If interests are on a steady decline, a variable mortgage rate is the way to go.

Fixed Mortgage Rates

These are mostly determined by the yield on Canadian government bonds of corresponding maturity. The difference between the rates of bond yields and mortgage rates equals what banks and financial institutions require to lend the money on the mortgage market, and thus what they charge for the fixed rate. 

So, which type of mortgage rate is right for you? When interests rates are high, there may be a chance that they could drop, so a variable rate might make sense. If they’re low, and set to rise, you may want to lock in a fixed mortgage rate. If a variable rate makes you nervous, you may feel more comfortable with a fixed rate, knowing that what you pay next year will be the same as this year.

Whether you’re a first time home buyer or refinancing your home with a second mortgage, Nelson Sousa is your mortgage expert. Mortgage financing and refinancing can be stressful and difficult, especially in a fluctuating market. Let us offer our experience and guidance. Give us a call at (877) 817-9984, or visit our website.


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