Your Complete Guide To Rates Mortgage Canada
If you’ve been looking for information on rates mortgage Canada, you have come to the right place. Interest rates that banks in Canada charge on mortgages and loans are referred as prime rates mortgage Canada. This is a very broad topic, with several aspects to it. This guide will take you step by step through the basics of mortgage rates in Canada in no time!
Introduction And History
Rates mortgage Canada, also referred to as the Prime Rate or Prime Interest Rate is decided by the Bank of Canada. This central bank was established in 1934. Prior to its establishment, there was no central banking authority in Canada because of which each major bank in the nation issued its own bank notes. As you can imagine, this wasn’t a desirable economic scenario.
After the historic Bank of Canada Act was passed in 1934, a central bank was established for the country. Eventually, after about a decade, it became the sole issuer of currency notes in the whole of Canada, which remains so to this day.
Over the years, the central bank has assumed many more responsibilities than merely printing notes. It is now a key player in the task of managing the nation’s economy.
One of the major methods of doing this is by regulating the prime interest rate of the country. The central bank decides the prime rate. This is where rates mortgage Canada becomes significant.
In order to protect the country’s economy from the whims of every successive government, it was important that the central bank be free of direct government interference. Thus, a system was established, wherein the head of the central bank (the Governor) is elected by a board of directors.
The Governor is in office for a period of seven years, and cannot be nominated or discharged by the government. This ensures a reasonable amount of independence for the central bank.
Basics Of Mortgage:
Before getting into the finer details of rates mortgage Canada, it’s essential to understand the basic vocabulary and jargon involved.
A mortgage refers to money borrowed from a bank or lender, for the purpose of buying property. The lender then uses the property as collateral or “security”, to ensure that the loan is repaid. The property is said to be “mortgaged” until the loan is fully repaid.
In the event that full repayment is not made, the lender may take legal ownership of the property. This process known as “foreclosure” is a legal matter that can take several months. Anybody facing the prospect of foreclosure must immediately seek the counsel of an expert lawyer.
A mortgage is generally repaid in several “installments”. Each repayment consists of interest and a portion of the principal amount. To start with, the principal amount is the total amount you have borrowed. With every successive payment, the principal reduces.
Interest is the amount of money that the bank charges for having lent money. This is typically expressed as a percentage of the principal. The word “rate” refers to this percentage. Interest is also dependent on the period of time for which the money is lent.
This period of time is known as “term”. It is the interval of time for which a set interest rate is paid. Usually, rates are renewed at the end of each term, to match the prevailing rate. There are some types of mortgages that offer a fixed rate.
Also, interest is usually “compounded” at the end of a term. This means that the interest not paid is added on to the principal for the next term. So, if $80 isn’t paid, the principal for the next term becomes $1080, and interest is calculated as a percentage of that.
For example, let’s say the mortgage on your property is $1000, and the interest rate is 8%. This means that for the specified term, you will be charged 8% of the principal ($1000). This is $80 for the given term.
A term can be any time period, from as short as a month to as long as several years. Higher rates are charged for long terms, while lower rates are charged for short terms. This is because interest is compounded after each term. A longer term means fewer compounding for the overall repayment period.
This overall period, or the time taken to complete all repayments on the mortgage, is known as “amortization”. There are three parameters used to compute this period. Firstly, it is assumed that interest rates will not change through the entire period. Secondly, it assumes that all payments will be made on time, and finally, that no extra payments will be made.
Lenders sometimes quote what are apparently lower rates than anyone else in the market. But this may just be because they are quoting a rate which is compounded for a shorter term. In the long run, this may or may not turn out to be cheaper than the others. There is even a chance that it will be more expensive.
This is why banks and lenders in Canada must compulsorily mention an “equivalent” semi-annual interest rate. This gives a common scale to gauge different rates, and determines the one which is the best.
Prime Rate Mortgage Canada
As mentioned earlier, the prime rate mortgage Canada is decided by the Bank of Canada. The prime rate in turn influences all the other lenders and their offered rates mortgage Canada. However, there is no single uniform rate across all lenders. Rates vary from one bank and another, but only slightly, not by a huge margin.
The point of the prime rate is to serve as a reference for all other rates. Interest on mortgages generally depends on the prime rate (except for a few types of mortgages, where a fixed rate of interest is offered).
Researching the hundreds of lenders across the country and finding the best deal can be a very complicated task. This is why it is advisable to approach a professional mortgage consultant. Also known as mortgage brokers, these experts can find you the best rates available. They also help you work out a form of repayment solution that is the most suited to your particular needs.
The agent will also take care of all the paperwork, and make sure that you are educated about all the hidden costs and fees. This is something that banks do not do because of which most borrowers find themselves confronted with hidden charges they didn’t know about at the time of borrowing.
There are several experts that you can consult during the process of acquiring new property. These include lawyers, bankers, and insurance brokers. Mortgage brokers play a vital role in these matters, and can make a big difference in helping you acquire your dream property, by finding the best mortgage rates for you.