Bond yields are not going to fluctuate, so there is no rise expected in fixed rates. However, as money lenders and banks will now adjust pricing to live up to new regulations announced on 1st of Jan, 2017, many borrowers will end up paying extra for their next mortgage.
During the last month, yields were retracted partially. Mortgage rates also accompanied bonds higher, but partially. Therefore, unless there is a drop in bond yields, there is no scope for the mortgage rate to increase even a bit. However, the new government is expected to force the rates to rise. Firstly, the lenders would need to have more capital sources for which they would need to pay money, which they will certainly try to recover. Secondly, the introduction of new policies will have an impact on the competition in the mortgage market, which will motivate lenders to increase their rates. All of this will result in increased rates on mortgages with fixed rates to increase further, at least by one quarter within next 3 months. In case of mortgage rate for variable rates, they are highly affected by the overnight rate of the Bank of Canada.
A lot of questions arise when homebuyers shop around for a property, like whether they should go for a mortgage broker or a bank. Well, although the homebuyers can approach either of the two to meet their mortgage needs, yet they aren’t sure about whom to choose! Here is a tip that can help you decide - If a homebuyer wishes to go with the bank, he will have to actually deal with the lender directly but if a homebuyer opts to approach a broker, he can get a lot of options to choose from different rates offered by an array of lenders. The brokers thus, help you get the best possible rate and terms.
However, when home buyers decide to shop around to buy a house, their minds are occupied with a lot of questions.
Let us have a look at some of the questions that puzzle every home buyer’s mind:
Should I compare mortgage rates?
Well, not all mortgage rates are designed equal. They can vary depending upon the terms and conditions and also as per the interest rate. Each mortgage is created to meet particular needs of an individual. So, to find the best mortgage rate that suits you, it is better to compare all the options available to you.
Which option is better- Closed or Open mortgage?
Closed mortgages come with lower rates as compared to open mortgages and are quite popular. Closed mortgages are available in fixed as well as variable form but include a restriction on the principal amount that you need to pay every year. In case you land up paying back the whole principal amount before a fixed term (in case of closed mortgages), you will have to pay a penalty which can be like an interest charge of 3 months.
On the other hand, open mortgages let you pay back your entire mortgage amount anytime during the year. The disadvantage is that, you need to pay a premium for this particular option. People opt for open mortgages either when they plan to shift in a short span of time or when they expect a lump sum amount via some incentives etc., so as to help them pay back their whole mortgage amount.
What is the difference between fixed and variable mortgage rates?
Fixed mortgage rates are popular and constitute around 66% of all types of mortgages in Canada. Fixed mortgage helps you to set it and then forget it as you are secured against change in interest rates. This allows your payment to remain fixed through the entire period of your term. A fixed mortgage provides stability as both, your payment and mortgage rate, remain fixed every month. Since fixed rates give the sense of security, they come with a higher rate of interest.
Variable mortgage rates are basically lower as compared to fixed rates, but they tend to fluctuate over the course of your term. Variable mortgages change with the change in market trends, which can change your payments. That means, the payment amounts that you pay can change during the term.
Fortunately, the competition is fierce in mortgage business. One lesson that home buyers/owners should take from an increase in the rate by RBC is not to avail a mortgage without a crosscheck on mortgage rate with more than one source. Homebuyers can check it with a mortgage broker who can give them rates offered by multiple lenders.
A great tip for people who decide to buy a house in the busy spring period! It is the time to lock in a better mortgage rate to eradicate the risk of being caught in the trap of increased rate. You can find a lot of mortgage lenders who can defeat the banks not only with rates, but also with lesser burdensome penalties, in case you want to break your mortgage much before it matures.
Also, you don’t need to negotiate with these mortgage lenders or to show your investments to get the best possible rate on a mortgage. Another important message that needs to be taken from increased rate by RBC is that the mortgages with variable rates are also losing their importance.
Fixed rate mortgages have been quite popular so far, but there are cases where the variable rate option is more in demand. Variable rate mortgages have lowered the interest rates, which is the effected due to the standard overnight rate of the Bank of Canada.
The Central Bank is not thinking about increasing rates soon, which also means variable mortgage rates are going to be safe from a rise in rates in the short term. Now, we notice that this actually isn’t the case. Both variable and fixed rates are low in the current mortgage market, but they may not be stable.
Lenders are experiencing increased costs for funding mortgages because of the new rules introduced in the mortgage market by federal regulators this year. Also, undetermined market trends are pressurizing lenders to bear higher rates on the money they fund to give out as mortgages. In all, it can be inherited that today’s mortgage market is quite complex than what the Canadian consumers are used to!
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