How Mortgage Rates are Determined

Posted on 16th August 2018
Tags: mortgages, housing market, toronto mortgages, mortgages rates, gta mortgages,

When the mortgage rate shifts even the slightest, the shockwave can reverberate throughout the housing market. There is also a potential ripple effect that can impact the job market and the provincial and national economy. Don’t treat mortgage rates as some boogeyman lurking in the closet waiting to scare you. The best advice is to understand what determines mortgage rates so you can forecast, predict and plan with greater ease and assurance.

Let’s review the factors that determine the mortgage rate to make sure you are prepared for whatever is going to happen next.

Economy

A common misconception is that The Bank of Canada sets the mortgage rates. As one of the nation’s most influential institutions, The Bank of Canada determines the overnight rate. Banks use the overnight rate to set their prime lending rate. The Bank of Canada helps stimulate the economy or deal with inflation, both of which could determine mortgage rates.

Since the Bank of Canada is tasked with safeguarding the Canadian economy and providing the overnight rate, the economy plays a distinct role in determining mortgage rates even if it’s at a very high-level.

Purchase Details

The down payment, the location of the property, the price of the property and the loan amount will all factor into determining your mortgage rate. A lender must review the details of the purchase to calculate which rate would apply to your loan. One example of this is that a higher down payment could result in a lower interest rate because a lender sees the loan as less risky.

Credit Score

Certain factors that determine your personal mortgage rate are out of your hands. Your credit score, though, is a way for borrowers to exercise some control over how much interest they pay on their mortgage. This is based on your history of accruing and repaying debt and tells lenders how much risk is involved with a mortgage application.

A positive credit score means you could possibly receive a lower mortgage rate. A poor credit score means you might have to pay a higher rate to offset the risk.

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More about the author...

Bob Aggarwal

As Co-Founder and President, Bob Aggarwal has been instrumental in creating an inclusive and customer-centric corporate culture at Canadalend. These policies and procedures have catapulted the company into being one of the largest volume Mortgage Brokerages in Ontario since its inception in 2005. Starting his career as a Broker specializing in small to medium businesses he has since expanded to include the residential, commercial, and consumer markets. He continues to guide Canadalend to date and enjoys spending time with his family when not closing deals.