Mortgage Rates

Home buying is on the rise in Canada. This year, more than 460,000 housing units were sold and, in 2020, that number is expected to surpass 480,000.

Whether you’re already shopping for a new home or just beginning to think about starting a search, there are a few things you’ll want to consider upfront. Keep reading to learn everything you need to know about mortgages and, more importantly, mortgage terms.

What is a Mortgage?

Most of us don’t have the cash to purchase a home outright, so we apply for a loan, also known as a mortgage. Sometimes a mortgage covers only the purchase price of the home. Other times, mortgages encompass property taxes as well. Because you’re borrowing tens of thousands of dollars to get a mortgage, doing so comes with some conditions. If you fail to pay back your loan, your property can be seized.

When paying your monthly mortgage payment, you’re paying two specific aspects of that loan. The first is the principal, which is the actual total of your loan that went toward buying your home, while the other aspect is the interest that the loan accumulates.

What is a Mortgage Rate?

If you’ve done any research on mortgages during your home search, you’ve likely heard the term “mortgage rate.” The mortgage rate is the rate of interest that your mortgage accrues. Mortgage rates fall into two categories: fixed and variable. With a fixed-rate mortgage, your interest rate remains the same for the term of your loan. With a variable-rate mortgage, however, your interest rate will fluctuate around a benchmark rate.

There are a number of reasons to choose either a fixed- or variable-rate mortgage. If interest rates are low when you apply for your mortgage, but you’re worried they may go up, a fixed-rate mortgage rate may be best. Conversely, if the opposite is true, and interest rates are high but patterns suggest they may soon decrease, a variable-rate mortgage may help you pay less interest during your mortgage term.

Ultimately, before choosing a fixed or variable-rate mortgage, you’ll need to research which interest rates are available to you. Mortgage interest rates aren’t a set number. While the market and economy affect rates as a whole, lenders have the ability to offer different interest rates. That’s why it’s important to shop around and compare current mortgage rates in Ontario before finding a lender.

What is Amortization and Mortgage Terms?

In Canada, most mortgage terms are for five years. But don’t mistake a mortgage term for the amount of time you’ll be paying back your mortgage. Instead, the mortgage term is the amount of time that certain details of your mortgage, such as your fixed or variable mortgage rate, will remain legal. After your mortgage term is completed, you’ll need to renew your mortgage. At this time, you might lock in a different fixed-rate mortgage, or continue with or switch to a variable-rate mortgage.

Meanwhile, the length of time in which you pay back your mortgage and finally own your home outright is amortization. The amortization takes into consideration the total amount of your loan and your projected interest rates, as well as the amount you pay toward your mortgage every month. There was a time when 40-year amortization periods weren’t abnormal. Today, it’s more common to be approved for amortizations of 10, 15, or 20 years.

Finding the Right Mortgage Rate

Finding the lowest available mortgage rate might not seem like a big deal when rates are within a few decimal points of one another. But a mortgage rate of 2.94 percent versus one that is 2.19 percent can translate to thousands of dollars over the course of a mortgage. Indeed, shopping around for the best rate can help you save money on your mortgage payments, as well as the total price you pay for your home.