mortgage

Understanding Mortgage Rates in Ontario Canada

If you’d like to settle down in Ontario and pursue your career or raise a family, sooner or later, you’d have to go house hunting and mortgage shopping.

For you to do that, you need to understand the mortgage rates in this very popular Canadian province.  And because mortgages follow a long-term process, it is separated into three parts:

  • The Down Payment
  • Monthly Payments
  • Fees

The Down Payment

The down payment is the cash you put down at the initial stage as security for the mortgage. More significant down payments open the door to better financing options and lower rates. You also pay smaller fees and attain faster equity for your home.

The minimum down payment in Ontario and even Canada is 5% for homes under $1,000,000 or 20% for homes of greater value. This is simply the minimum, the final percentage is determined by various factors unique to your purchase.

Monthly Payments

The monthly payments are the amount you pay every month to finance your mortgage. It includes percentages of the principal and the interest. Property taxes and incidental fees are factored into the monthly payment. You can calculate your monthly payments here.

Fees

These are the minor costs you have to incur upfront to secure your loan. Fees could include Mortgage brokerage fees. Mortgage brokers who charge a fee to prospective house buyers refer to the fee as a ‘mandate’. These brokers are required to notify the customer in writing that they charge a fee for their service.

Although the Bank Rate remained static past the federal elections, a few analysts predict Canadian mortgage rates falling by early 2020. Before we get into that, it’s essential to know the different types of mortgages available in Ontario and what they mean for your financing.

Types of Mortgages Available in Ontario

Low Ratio Mortgages

Low Ratio mortgage is a mortgage where the borrower (you) sets down 20% of the value of the property as the down payment. The down payment may also be higher depending on your financial strength.

High Ratio Mortgages

The polar opposite of a low ratio mortgage, the borrower puts down cash that’s smaller than 20% of the total value of the property. These mortgages come with mortgage default insurance that is financed through Genworth Financial, Canada Guarantee, or Canada Mortgage and Housing Corporation.

Open Mortgages

These mortgages are known for their flexibility. They give the borrower the breathing space to pay back the mortgage at any point in time without penalty fees. All factors equal, an open mortgage will have higher payments than a closed mortgage.

Closed Mortgage

Closed mortgages, as the name suggests, are mortgages that can’t be renegotiated and refinanced before the maturity date. It operates strictly according to the terms it is set upon.

Fixed-Rate Mortgages

Fixed-rate is a mortgage where all the payments, both fees, and monthly installments are “locked-in” for the duration of the mortgage agreement. Financiers may offer you a variety of options that allows you to pay at a faster rate or complete your payment or make a partial payment of the total sum.

Variable Rate Mortgages

These mortgages have rates that fluctuate up and down depending on the interest rate on the market. It is adjusted by the lender and pegged on the current interest rate.

Home Equity Lines of Credit

Unlike the typical mortgage, HELOCs are lines of credit that are secured against your home’s equity. HELOCs are dynamic in the sense that parts of it can be fixed, and parts of it can be variable.

Fixed or Adjustable Rates?

Once you begin to consider purchasing a mortgage, you have to make up your mind on specific options. One of the tough decisions you’ll have to make is to pick between the Fixed-rate or Adjustable rate. They both have their pros and cons, which you’ll find out below.

Pros of Fixed Mortgage Rate

  1. The rates and payments stay the same no matter the fluctuation in the broader economy.
  2. Canadians are better able to project their finances and spending due to stability in housing payments.
  3. Easy to understand, fixed mortgages are appealing to buyers who are purchasing for the first time.

Cons of a Fixed Mortgage

  1. Should interest rates drop, fixed mortgage holders cannot take advantage of the fall. They’d have to refinance all over again, which incurs costs as well as borrowing fees.
  2. It’s more challenging to secure due to the higher mortgage rates in comparison to the adjustable rates.
  3. There’s a likelihood it may cost much more interest-wise throughout the tenure of the loan.
  4. It is more rigid and tough to tailor to the borrower’s needs.

Pros of an Adjustable Rate

  1. At the initial stage of the tenure, adjustable rates have lower payments. Adjustable or variable rates allow Canadians to purchase costlier homes than they could afford.
  2. It gives borrowers the ability to benefit from falling rates without recourse to refinancing.
  3. It allows borrowers to invest. A borrower who pays C$500 less can channel that money into an investment that can yield profit.
  4. It gives borrowers who prefer to move around the opportunity to purchase a property.

Cons of Adjustable Rates

  1. The unpredictability of the rates makes it likely to rise throughout the tenure of the loan, which can significantly affect your budget and financial projection.
  2. Some yearly caps are not applicable to the first loan adjustment, which makes it difficult to absorb.
  3. Adjustable rates are more complex than fixed rates and can be confusing for a first-timer.

Factors to consider when choosing between a Fixed Rate and an Adjustable Rate:

  • Duration of Stay 

If you intend to stay in Ontario for just a few years, then it’d be advisable to select the lower adjustable-rate, which begins at a lower rate. The lower payments ensure you save for your bigger future home. And more importantly, before the more significant rate adjustments kick in, you’ll already be moving.

  • Frequency of Adjustments

Apart from the earlier fixed period, most adjustable rates will adjust on the anniversary of the mortgage. However, some may adjust every month. If the frequency is too volatile for your finances, then the fixed rate is the best way to go.

  • Current economic environment

Where rates are high on average, then the adjustable rates makes more sense because of the lower initial payments. But when the prices are typically small, you should opt for the fixed rate.

  • Affordability

If you cannot afford to make your payments should the rates increase significantly, then its best to go for the fixed rate. The stability a fixed rate offers, allows you to plan your finances better.

Mortgage Trends in Ontario

Canadians shopping for mortgages have never had it better than now. Fixed rates are almost hitting two-year lows, and this has been the trend for months.

The fixed rates are even lower than some variable rates. It remains to be seen how long the trend will last as a few lenders begin to hike their fixed rates in the past weeks despite no surge in movement.

Significant events such as the impending recession is bound to impact Canada in some way. There’s also the unpredictability of oil – not helped by the US, Iran crisis as well as Trump-factored volatility.

The big question is whether today’s borrowers ought to secure the current low rates or hold out for even lesser prices? Experts predict a slightly downward trend barring any surprises.

As mortgage shoppers in Ontario continue to time the market, you should never take rate forecasts too seriously. The fact remains situations can change in an instant, and whatever decision you’d want to make on your mortgage should not be anchored on probability.

Select a mortgage combo that provides a perfect balance of value and flexibility instead of trying to predict where you think the rate could be headed.

Current Mortgage Rates in Ontario

These are the current rates across lenders in Ontario.

*Note these lists will be continuously updated to reflect current economic realities.

Mortgage Rates RBC

These are the popular rates for the Royal Bank of Canada. For other rates, see here.

Term Special Offers APR
2 Year Fixed 3.190% 3.250%
5 Year Fixed 3.240% 3.270%
5 Year Variable RBC Prime-Rate 0.600%

(3.350%)

3.380%

Mortgage Rates Scotiabank

The following are the popular rates for Scotiabank. For other rates, see here.

Variable Mortgage Rates

Scotia Ultimate

Variable Rate Mortgage

3 Year Closed

Term

 

4.250%

Scotia Flex Value

Mortgage – Closed

5 Year Term

4.150%

Scotia Flex Value

Mortgage – Open

5 Year Term

5.750%

Closed Term Fixed Rates

Term Rates
1 Year 3.640%
2 Year 3.740%
3 Year 4.390%
4 Year 4.590%
5 Year 5.190%

Mortgage Rates TD

The following are the popular rates for TD Canada Trust. For more information and other rates, see here.

Special Mortgage Rates

Term Special Rates APR
3 Year

Fixed Closed

3.19% 3.22%
5 Year

Fixed Closed

3.20% 3.22%
5 Year

Variable Closed

3.35% 3.37%

Fixed-Rate Closed Mortgages

Term Rate Special Rate APR
1 Year Fixed 3.59%
2 Year Fixed 3.79%
3 Year Fixed 3.19% 3.22%
4 year Fixed 3.94%
5 Year Fixed 3.20% 3.22%

Mortgage Rates CIBC

These are the popular rates for the Canadian Imperial Bank of Commerce. For other rates, special offers, and more information, see here.

Fixed-Rate Closed Mortgage

Term Posted Rate
1 Year 3.39%
2 Year 3.39%
3 Year 3.94%
4 Year 4.49%
5 Year 5.34%

Fixed-Rate Open Mortgage

Term Posted Rate
6 Months 7.25%
1 Year 6.35%

Variable Flex Mortgage

Term Posted Rate
3 Year 3.95%
5 Year 3.95%

Variable Rate Open Mortgage

Term Posted
5 Years 5.75%

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