Best Mortgage Rates

Introduction to Mortgage Rates in Canada

When it comes to purchasing a home in Canada, understanding mortgage rates is crucial. Mortgage rates can significantly impact the overall cost of your home loan and your monthly payments. In this article, we will explore the best mortgage rates available in Canada, the factors influencing these rates, and tips on securing the lowest possible rate for your home loan.

Understanding Mortgage Rates

Mortgage rates refer to the interest charged on a mortgage loan. They can be either fixed or variable. A fixed mortgage rate remains the same throughout the loan term, providing stability and predictable payments. On the other hand, a variable mortgage rate fluctuates with market conditions, which can result in varying monthly payments.

Highlights from the Bank of Canada’s June 5, 2024 Announcement

At its fourth announcement of the year on June 5, 2024, the Bank of Canada lowered its target for the overnight rate by 0.25% from 5.00% to 4.75%. This is the first rate cut implemented by the central bank since March 2020.

The Bank pointed to steadily improving inflation data as the driver of its decision, with April’s CPI coming in at 2.7% and “core” trim and median measures down to 2.6% and 3.2%, respectively.

Anyone with a variable-rate mortgage or a home equity line of credit (HELOC) will undoubtedly be very pleased with the Bank’s decision, as their rates will finally begin descending from a nearly 20-year high.

Although fixed mortgage rates are tied to the bond market and are thus not directly impacted by the Bank of Canada’s rate cut, bond yields have dropped about 30 basis points in the days leading up to the Bank’s announcement. With a rate cut now having taken place, lenders are likely to reduce their fixed-rate mortgage products in the days to come.

Canadians looking to buy a home or whose mortgage is up for renewal should get a rate hold to ensure they can take advantage of the best rate possible. As mortgage rates go down during the time of your rate hold, you will be eligible for the lowest rate.

It will be interesting to see what effect this announcement will have on the housing market. While a 0.25% rate cut does not offer major relief from currently elevated prices and borrowing costs, buyers may be more inclined to enter a declining rate market, in part due to anxiety over missing their ideal buying window should demand ramp up.

May 2024: Mortgage Market Update

The early months of 2024 were volatile for the Canadian housing market, but there are early signs that sales activity will improve, as expectations rise that rate cuts could come from the Bank of Canada as early as the summer months.

Bond yields, however, continue to roller coaster up and down, as investors react to conflicting economic data reports. After tumbling in December and January, they’re now in the upper 3% range, as markets are anxious over a “higher for longer” stance from the US Federal Reserve.

Overall, variable and fixed mortgage rates remain historically elevated. If you’re shopping for a mortgage rate in Canada right now, here are some economic factors you should be aware of.

Real Estate Update

The latest April data, released by the Canadian Real Estate Association (CREA) on May 15, 2024, shows things have yet to heat up for Canada’s typically busy spring market. Home buyers largely stuck to the sidelines over the course of the month, causing sales to drop 1.7% from March, with a total of 37,745 transactions. On an annual basis, that is up 10%, though CREA largely attributes this increase to the timing of the Easter long weekend. However, while sales have slowed, the number of newly listed homes continues to grow; a total of 70,346 homes were brought to market, well outpacing that of sales.

The result is a slowdown in the national average home price, which fell 1.8% year over year to an average of $703,446. New listings outnumbering sales has also resulted in better market balance – the national sales-to-new-listings ratio (SNLR) fell to 53.4%. This metric measures the level of competition within the housing market; a ratio between 45% and 65% is generally consistent with balanced housing market conditions, with readings above and below this range indicating sellers’ and buyers’ markets respectively.

CPI Update

The April Consumer Price Index (CPI) report from Statistics Canada, released on May 21, 2024, shows steady progress continues to be made in reducing inflation’s growth, with the headline number coming in at 2.7%. That’s down from the 2.9% recorded in March, and is the lowest the inflation rate has been since March 2021. It also marks the fourth month in a row that the metric is within the Bank of Canada’s 1-3% target range, which is positive news for the Bank of Canada, which has been working to reduce the measure’s pace of growth.

According to the report, food costs are on the decline, slowing to 1.4% in April, from 1.9% the previous month. However, gas prices rose during the same time period, with consumers paying 6.1% more at the pump on an annual basis. Shelter costs continue to be the largest contributor to inflation’s growth; mortgage interest costs are up 24.5% year over year, while rents rose 8.2%.

Overall, however, the Bank of Canada should be encouraged by this month’s promising report; two of the central bank’s preferred metrics – called the CPI Median and CPI Trim – also lowered in April, to 2.6% and 3.2%, respectively. This should help pave the way for the BoC to cut its trend-setting interest rate as early as its upcoming announcement on June 5th; markets are currently pricing in 50% odds.

2024 Housing Market Forecast

CREA also updated its forecast for 2024 and 2025, due to growing expectations of rate cuts, and pent-up home buyer demand.

It anticipates a total of 492,083 homes will be sold in 2024, up 10.5% from 2023. Sales growth is expected to be strongest in provinces where housing demand has been consistent, such as Alberta. However, markets that have seen “historically low sales volume”, such as Ontario, BC, and Nova Scotia, will also see growth. The national average home price will rise by 4.9% to $710,468 in 2024.

Activity will continue to pick up steam in 2025, with sales to hit 530,494 units – an increase of 7.8%, and the national average home price to rise by 7% to $760,120.

Factors That Can Affect Your Mortgage Rate in Canada

It’s important to understand that the best mortgage rate you qualify for may change depending on your unique borrowing profile. Here are some of the factors that influence what mortgage rate you qualify for:

The Type of Mortgage

If your mortgage is for a refinance, rather than a purchase or renewal, you’ll be eligible for higher rates. For individuals with an existing mortgage who have good credit and more than 20% equity in their homes, in addition to refinancing, you can also explore a home equity line of credit (HELOC).

Your Down Payment

If you’re purchasing a home and your down payment is less than 20% of the purchase price and the value of the home you are purchasing is less than $1 million, you’ll be required to purchase mortgage default insurance (sometimes known as CMHC insurance). This insurance is added to your mortgage amount and, while it will cost you money, it will result in a lower mortgage rate as your mortgage is less risky for your lender. If you’re renewing your mortgage, in order to be eligible for the lowest mortgage rates you would have needed to purchase CMHC insurance on the original mortgage.

Your Intended Use of the Property

Your mortgage rate will be higher if you plan to rent your property out versus living in it as your primary residence.

Your Amortization Period

Insurable mortgages (i.e., mortgages for homes valued at less than $1 million with a down payment of less than 20% of the purchase price) in Canada have a maximum amortization period of 25 years. Regardless of the price of your home, if you make a down payment of at least 20%, you are able to access a mortgage that allows a longer amortization period, such as a 30-year period. While longer amortization periods will usually result in a lower monthly payment, they can come with a slightly higher interest rate. Moreover, by taking longer to pay back the mortgage, you will pay more in interest overall than you would with a shorter amortization period.

Fixed vs. Variable Mortgage Rates

Fixed mortgage rates are ideal for borrowers who prefer stability and want to avoid any surprises in their monthly payments. These rates are typically higher than variable rates but offer peace of mind as they are not subject to market changes. Variable mortgage rates, conversely, are lower initially but can change based on the prime lending rate set by financial institutions. These rates are suitable for borrowers who can tolerate some degree of uncertainty and are willing to take advantage of potentially lower rates.

Factors Influencing Mortgage Rates

Several factors influence mortgage rates in Canada. Understanding these can help you better navigate the mortgage landscape:

• Bank of Canada Rates: The Bank of Canada sets the benchmark interest rate, which directly affects mortgage rates. When the benchmark rate rises, mortgage rates typically follow suit.
• Economic Conditions: Economic indicators such as inflation, employment rates, and economic growth can impact mortgage rates. Strong economic growth often leads to higher rates, while economic downturns can result in lower rates.
• Credit Score: Your credit score plays a significant role in determining the mortgage rate you qualify for. Higher credit scores typically result in lower interest rates.
• Loan Amount and Term: The amount you borrow and the term of your loan can also affect your mortgage rate. Shorter loan terms generally have lower rates compared to longer terms.
• Down Payment: A larger down payment can lower your mortgage rate, as it reduces the lender’s risk.

Top Mortgage Lenders in Canada

Canada has a robust mortgage lending market with numerous lenders offering competitive rates. Here are some of the top mortgage lenders in the country:

1. RBC Royal Bank

RBC Royal Bank is one of the largest banks in Canada and offers a variety of mortgage products with competitive rates. Their fixed-rate mortgages provide stability, while their variable-rate mortgages allow borrowers to take advantage of potential rate decreases.

2. TD Canada Trust

TD Canada Trust is known for its excellent customer service and competitive mortgage rates. They offer a range of mortgage options, including fixed and variable rates, as well as flexible payment plans to suit different needs.

3. Scotiabank

Scotiabank offers a wide array of mortgage products, including unique options like the Scotiabank eHOME, an entirely digital mortgage experience. Their rates are competitive, and they provide tools and resources to help borrowers make informed decisions.

4. BMO Bank of Montreal

BMO Bank of Montreal offers attractive mortgage rates and a variety of terms to fit different financial situations. They also provide helpful resources, such as mortgage calculators and online applications, to streamline the process.

5. CIBC

CIBC is a major player in the Canadian mortgage market, offering competitive rates and a range of mortgage solutions. They provide both fixed and variable rate options and have a reputation for strong customer support.

Current Mortgage Rates in Canada

As of 2024, mortgage rates in Canada are influenced by various economic factors. Here’s a look at the current average rates for both fixed and variable mortgages:

• 5-Year Fixed Rate: The average rate for a 5-year fixed mortgage is approximately 3.5%.
• 5-Year Variable Rate: The average rate for a 5-year variable mortgage is around 2.8%.

These rates are subject to change based on economic conditions and the policies of the Bank of Canada. It’s essential to stay updated with the latest rate trends when considering a mortgage.

Tips for Securing the Best Mortgage Rates

Securing the best mortgage rates can save you thousands of dollars over the life of your loan. Here are some tips to help you get the lowest possible rate:

• Improve Your Credit Score: A higher credit score can qualify you for lower mortgage rates. Pay off debts, avoid late payments, and correct any errors on your credit report.
• Shop Around: Compare rates from different lenders to find the best deal. Don’t settle for the first offer you receive.
• Consider a Larger Down Payment: A larger down payment can reduce your loan-to-value ratio, making you less risky to lenders and potentially securing a lower rate.
• Shorten Your Loan Term: Shorter loan terms often come with lower interest rates. If you can afford higher monthly payments, consider a 15-year mortgage instead of a 30-year mortgage.
• Lock in Your Rate: Once you find a favorable rate, lock it in to protect yourself from future rate increases while your loan is being processed.
• Work with a Mortgage Broker: Mortgage brokers can help you find the best rates by accessing a network of lenders and negotiating on your behalf.

Common Mortgage Mistakes to Avoid

When securing a mortgage, it’s crucial to avoid common mistakes that can cost you money and complicate your home-buying process. Here are some pitfalls to watch out for:

• Not Getting Pre-Approved: Failing to get pre-approved for a mortgage can put you at a disadvantage in a competitive housing market. Pre-approval gives you a clear idea of your budget and shows sellers that you’re a serious buyer.
• Ignoring Additional Costs: Remember to factor in additional costs such as property taxes, home insurance, and maintenance expenses when budgeting for your mortgage.
• Choosing the Wrong Mortgage Type: Carefully consider whether a fixed or variable rate mortgage suits your financial situation and risk tolerance. Selecting the wrong type can lead to higher costs in the long run.
• Not Shopping Around: Don’t settle for the first mortgage offer you receive. Comparing multiple lenders can help you find the best rate and terms for your needs.
• Overextending Your Budget: Avoid the temptation to borrow the maximum amount you’re approved for. Stick to a budget that allows you to comfortably afford your monthly payments and other expenses.

The Role of Mortgage Brokers

Mortgage brokers can be valuable allies in your quest for the best mortgage rates. They act as intermediaries between borrowers and lenders, helping you find the most competitive rates and terms available. Here’s how a mortgage broker can benefit you:

• Access to Multiple Lenders: Brokers have relationships with various lenders and can provide you with a range of options to choose from.
• Expert Advice: Brokers can offer personalized advice based on your financial situation and goals, helping you make informed decisions.
• Negotiation Skills: Brokers can negotiate with lenders on your behalf to secure better rates and terms.
• Convenience: Working with a broker can save you time and effort by handling the paperwork and communication with lenders.

Understanding Mortgage Pre-Approval

Getting pre-approved for a mortgage is an important step in the home-buying process. It involves a lender evaluating your financial situation to determine the loan amount you qualify for. Here’s what you need to know about mortgage pre-approval:

• Financial Assessment: The lender will review your income, credit score, debts, and other financial information to assess your borrowing capacity.
• Pre-Approval Letter: Once approved, you’ll receive a pre-approval letter stating the loan amount you’re eligible for. This letter can strengthen your position when making an offer on a home.
• Validity Period: Pre-approval is typically valid for 60 to 90 days. If you don’t find a home within this period, you may need to renew your pre-approval.

Refinancing Your Mortgage

Refinancing your mortgage involves replacing your current loan with a new one, often with a lower interest rate or better terms. Here are some reasons why you might consider refinancing:

• Lower Interest Rate: If mortgage rates have dropped since you took out your original loan, refinancing can help you secure a lower rate and reduce your monthly payments.
• Shorten Loan Term: Refinancing to a shorter loan term can save you money on interest over the life of the loan.
• Access Home Equity: If you’ve built up equity in your home, you can refinance to access some of that equity for home improvements, debt consolidation, or other expenses.
• Change Loan Type: You might want to switch from a variable-rate mortgage to a fixed-rate mortgage to gain stability in your payments.

Mortgage Renewal Tips

When your mortgage term comes to an end, you’ll need to renew your mortgage. Here are some tips to help you through the renewal process:

• Start Early: Begin shopping around for renewal options several months before your current term expires. This gives you ample time to compare rates and negotiate with your current lender.
• Negotiate: Don’t accept your lender’s first renewal offer without negotiating. Use competitive offers from other lenders as leverage to secure a better rate.
• Consider Your Needs: Assess your financial situation and future plans to determine if you need to adjust your mortgage term or type.
• Review Terms and Conditions: Carefully review the terms and conditions of your new mortgage agreement to ensure it meets your needs.

First-Time Home Buyer Incentives

Canada offers several incentives to help first-time home buyers enter the market. These programs can provide financial assistance and make homeownership more accessible:

1. First-Time Home Buyer Incentive

This program allows eligible first-time buyers to finance a portion of their home purchase through a shared equity mortgage with the Government of Canada. This reduces monthly mortgage payments without increasing down payment requirements.

2. Home Buyers’ Plan (HBP)

The HBP allows first-time home buyers to withdraw up to $35,000 from their Registered Retirement Savings Plan (RRSP) to use towards the purchase of a home. The withdrawn amount must be repaid within 15 years.

3. First-Time Home Buyers’ Tax Credit

This tax credit provides first-time buyers with a non-refundable tax credit of up to $750, helping to offset some of the costs associated with purchasing a home.

The Impact of Interest Rates on Mortgage Payments

Interest rates play a significant role in determining your monthly mortgage payments. Here’s how different interest rates can impact your payments:

• Higher Interest Rates: Higher rates increase your monthly payments, as a larger portion of your payment goes towards interest. This can also reduce the amount of home you can afford.
• Lower Interest Rates: Lower rates reduce your monthly payments, allowing you to pay off your loan faster or afford a more expensive home.

It’s crucial to consider how changes in interest rates can affect your budget and long-term financial plans.

Conclusion

Securing the best mortgage rates in Canada requires a combination of research, preparation, and strategic decision-making. By understanding the factors that influence mortgage rates and taking steps to improve your financial profile, you can position yourself to receive the most favorable rates and terms. Whether you’re a first-time home buyer or looking to refinance, the information provided in this article will help you navigate the mortgage landscape with confidence and make informed decisions that benefit your financial future.