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Factors Affecting Fixed and Variable Canadian Mortgage Rates


There are a number of factors affecting the economy and influencing the lenders as well as the percentage of interest rate they charge on home loans. These factors include inflation, unemployment, oil price, consumer confidence, etc. These are only a few factors to name as it is quite challenging to retain complex metrics.

Many Canadians believe that it is the interest rate decision taken by the Bank of Canada that influences overall mortgage rates throughout the country. However, that is not the exact case. Variable or adjustable Canadian mortgage rates have a great impact on many other different factors.

 Variable or Adjustable Mortgage Rates

Without a doubt, the Bank of Canada has a significant role to play in determining variable rates for home loans as they are also responsible for deciding on the ‘target overnight rate’.

This is a pre-determined rate decided by the Bank of Canada that it wishes the other institutions in the marketplace to follow for a single day loans. If this rate fluctuates, it also influences other rates of interest, such as those for consumer mortgages and loans.

Target overnight rates influences the Prime rates set by lenders. While the Bank of Canada only decides the ‘target overnight rate’, the Prime rate is determined by individual financial institutions on the basis of the pre-determined ‘target overnight rate’.

The factor is vital as variable rates for mortgage are promoted as Prime – 0.60 percent or likewise. This reflects how the interest rate you are liable to pay is directly associated with the Prime rate and how any changes in the Prime rate will affect the interest rates as well. Thus, if the Bank of Canada decides to reduce basis points by 50 or 0.50 percent, the Prime rates are likely to decrease too. In short, the overall mortgage payment will be decreased.

Without a doubt, variable mortgage rate is a favorable option if rates are falling.

Fixed Mortgage Rates

Once again, the role of the Canadian government is very significant when it comes to the fixed mortgage rate, especially with regards to government bonds price. As compared to stocks, bonds (specifically government bonds) are considered a safer investment options.

When stock market becomes lucrative, investors make high returns on their equity investments. This results in a lower demand for government bonds and eventually decline in worth as well. On the contrary,  whenever the economy of Canada becomes unstable and people stop investing in stock the demand for bonds boom. This way, the value of the bonds rises again.

As an outcome, when Canada’s government determines long-term prices of bonds, for instance a 5 year increase, the result would be a decrease in the yield. This further reduces the borrowing costs for a span of five years for mortgage lenders who can later on transfer the savings by reducing the fixed mortgage rate for 5 years.

If you are looking forward to invest in a residential property in the upcoming months, lock your Canadian mortgage rate and make the most out of this option. Don’t forget to negotiate the terms with a mortgage broker or lender before you proceed.

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