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What Causes a Change in Mortgage Rates?


When you are thinking about buying your own home in Canada, perhaps the first thing that comes to mind is the mortgage rate and how will it affect your monthly budget. Even though the current mortgage rates are at their attractive best and locking in to them can prove to be a winning deal, it is important to know about the factors that affect a mortgage in detail so that you can assess your future considerations.

Mortgage rates in Canada are affected by a variety of factors, and each one of them has some impact on the fluctuation of the rates over time. Counting on fingertips, some of the major factors that affect and influence mortgages in Canada include:

  • Government of Canada’s bond rates
  • The current situation of the economy
  • Rate of unemployment and level of inflation
  • Confidence of the consumers in the market
  • The trends of the housing markets in Canada
  • The prime interest rates devised by the Bank of Canada

Want to know how these individual factors contribute towards the rise in both fixed and variable mortgage rates? Keep reading to find out!

Changes in Fixed Rates

Fixed rates remain fixed or bound on a particular mortgage rate for a pre-decided amount of time which is called the term of the mortgage.  They come with a pricier interest tag; however, as the payments are fixed you can be assured of a stable payment amount over the years. Fixed rates are ideal to lock in for when the mortgage rates are low.

Fixed mortgage rates are primarily affected by the changes in the price of bonds and their yields. The relationship between these three is as follows: When the bond price increases, the bond yields decreases and the fixed mortgage rate also decreases. In a similar fashion, when the bond prices go down, the bond yield goes up and the fixed mortgage rate also increases. 

Changes in Variable Mortgage Rates

Variable mortgage rates reset with the current interest or prime rate of the Bank of Canada. Simply put, variable mortgage rates fluctuate on a monthly basis and thus there is no fixed amount of payment that you will have to make. Though there is an uncertainty about the overall mortgage payment, this type of mortgage is generally preferred by people because it comes with a lower amount of interest.

The changes in variable mortgage rates are because of the overnight lending rate or prime rate changes by the Bank of Canada. This change is generally influenced by the cost of lending and borrowing of any short term funds between banks. When these prime or overnight rates increase, the variable mortgage rates also increase and vice versa.

Currently, experts predict a constant outlook on the mortgage rates and they are not likely to experience a drastic change in the coming few months. With attractive offers and low interest, this is perhaps one of the best times to buy and own a home in Canada.

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