Why Current Mortgage Rates Make It A Great Time To Buy A Home

One of the biggest factors in determining the affordability of a home is your mortgage rate. Even a small percentage more or less could mean thousands of extra dollars spent or saved over your amortization period or even your mortgage term.

From 2017 to 2018, interest rates rose by 0.75% in Canada making the average Prime Rate 3.95% and this continued through into 2019. Now in 2020, with the Bank of Canada doing what it can to stimulate the economy in the midst of a pandemic, we are seeing rates at an all-time low – as low as 1.99% in fact.

So, what exactly does this mean for you? If you are looking to get into the housing market, this could be a perfect buying opportunity.

“We are seeing interest rates very low right now. For buyers it is a very favourable times to look at making that move and purchasing a home,” says Jowita Michaliszyn, Mortgage Specialist from RBC.

When rates were at 3.95%, the monthly payment on a $400,000 mortgage would have been $1,891 per month – based on a five-year fixed rate and an amortization period of 30 years. At 1.99%, that same mortgage would now cost you $1,475 per month. Over the course of five years, that equates to a $24,960 savings!

And with rates as low as they are, there are strategies you can use to pay down your mortgage as quickly as possible.

Is now the right time to buy?

As mentioned earlier, with rates as low as 1.99% there has never been a more affordable time to get a mortgage.

But of course, you will still need to qualify. The COVID-19 pandemic has resulted in many job losses across the country, and some individuals have greatly increased their personal consumer debt.

When you apply for a mortgage, lenders look at a number of factors including your credit rating, your assets, and your debt-to-income ratio. You still need to be able to demonstrate that you are in a solid enough financial position to be able to make your monthly or bi-weekly mortgage payments.

However, for those who can afford it, and are financially secure, the current low mortgage rates make now an excellent time to invest in a home.

How are individual mortgage rates set?

Mortgage rates are generally determined by economic growth, prime lending rates, as well as some individual factors of the borrower.

Economic growth – to a certain extent, borrowing rates are set by supply and demand. When there is an economic boom, more companies borrow money to invest and expand their businesses. This increased demand drives rates upward. Likewise, when there is a lull in the economy, demand drops as to interest rates.

Prime lending rates – The prime rate is set by the Bank of Canada in order to keep inflation in check. With inflation predicted to remain low for the foreseeable future, so too is the current prime rate.

Individual factors – the final consideration in determining a borrower’s mortgage rate are their own individual factors such as debt repayment history, amortization period, and prepayment risk. Borrowers that are considered to present the least risk to the lender will be given the best rates.

Does modular building affect the mortgage process?

To debunk a common myth, acquiring a mortgage for a modular home is not more difficult, in fact, it is much simpler.

“The mortgage process for a modular build is a lot simpler and straight forward. Funds of mortgages get advance on one payment the day your Quality Home gets delivered. With a typically construction mortgage, it can be spread out over an entire year/the time it takes for the home to be built. There are very strict guidelines and timelines that make the process long and difficult. With modular homes, you don’t have this, it all falls into place very nicely. Everything is done at once,” Jowita says.

What you can do to pay off your mortgage faster?

Even though now is a great time to get a mortgage, many people do not like the idea of having that much debt and they want to know strategies for paying off their mortgage faster. Here are 3 things that you can do:

Make bi-weekly payments – When you make bi-weekly payments instead of monthly payments, you are making 26 half-payments a year instead of 12 full payments. That equates to one extra full payment per year, which while it might not seem like much will accelerate how quickly you pay down your principle.

Make extra lump sum payments – Most mortgage lenders allow you to make what are called anniversary payments. These are lump sum payments up to a certain amount that you can make on your mortgage principal once a year.

Shop around before you renew – To pay your mortgage off as quickly as possible, you need to make sure you are getting the best rate you can get. At the end of your mortgage term, before you simply renew with your current lender, shop around to see if you can get a better rate. Even if you wish to stay with the lender you have, finding a better rate will at least give you some negotiating power.

If you feel that now is the right time to purchase your Quality Home, one of our Banking Partners would be happy to schedule a consultation with you to review your mortgage options. Our trusted Mortgage Specialists will work with you directly to assist with all of your financing needs. We are here to simplify the process and give you the peace-of-mind you deserve.

Click to view additional resources from our partners at RBC Royal Bank:

Mortgage Document Checklist

Mortgage Payment Calculator

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