“Lower than prime,” you heard someone say. Like most Canadians, you were probably first skeptical and then confused. We tend to think of the prime lending rate as the invisible “floor” of lending rates. The very best customers can get very close to that floor. It is theoretically possible, we reason, to actually be ON the floor, but not possible to be below it.
Nevertheless, Canadian lenders offer mortgages at prime minus 0.5% to even minus 0.7%. So the floor isn’t the lowest you can go. There’s something under the “floor”. The rate known as “prime” has been the popular benchmark for lending in Canada. When business reporters talk about interest rate movement, they usually talk about what’s happening with prime. But there are other benchmarks in money rates, though they are typically for use by professional money managers. The most significant of these is the Banker’s Acceptance rate.
While “prime” is a set rate which is offered to a lender’s best customers, the Banker’s Acceptance is the rate which financial institutions use to lend money to one another. And it’s typically well below the prime rate. Look for the “Money Rates”section of your favourite newspaper, and you can compare Prime with the Banker’s
Acceptance rates for yourself. “Interesting,” you think, “but why does it matter?” Well, as new lending institutions begin to offer a slate of innovative new loan options, a new mortgage has emerged that is based on the Banker’s Acceptance rate: offering a mortgage rate of 1% over the 3-month Banker’s Acceptance.
If you compared the rock-bottom prime-based variable mortgage rate – prime less 0.5% to 0.7% – with the new adjustable BA-based rate, you would find that the BA-based rate would have delivered significant savings over the past several years, as rates were dropping. There are two reasons for this. Firstly, the BA-based rates have historically been considerably lower than prime. Secondly, the prime rate tends to be “stickier” in an environment where rates are falling. Often, the more fluid, market-based BA rates deliver the rate change more quickly.
Any variable- or adjustable-rate Ontario mortgage is an excellent option when interest rates are either dropping or stable. Not surprisingly, they’ve been a very popular choice in the past few years. There are some rumblings now that rates may begin to increase, but flexible-rate mortgages still remain an excellent choice for those looking to save some interest.
As always, you should consult with a mortgage professional to find the mortgage that suits your personal financial needs. An independent mortgage broker can provide you with information on a broad range of mortgage options from a wide variety of lending institutions, so you can compare features and options at a glance.
And remember, it’s worth taking some time to look beyond prime and explore what’s “under the floor” in mortgage options!
Questions related to mortgage rate
mortgage rate?
My fiance and I are looking to buy. We have about 10,000 to use as a downpayment. My score is about 670 and his is slightly higher. We were looking in the 200,000 range. What kind of rate can we expect to get. We have both been at our jobs for several years and have a combined income of about 75,000 per year.
any insight?
Currently 5.05% or 5.09% fixed 5 year rate.
The last two times when I renewed with my bank (TD canada trust), I used canadamortgage.com and a couple of other local mortgage broker sites to get their best rates and then asked and got my bank to match their competative rate. If your bank won`t match, use a local mortgage broker for your mortgage.
you would be considered unmarried co-borrowers. It is qualified off of the primary wage earners middle FICO. assuming that you are both going to live there. If not, it will be qualified off of the owner occupying the property.
Mortgage rates are not driven by fed rates. They are driven by the bond market, which competes with mortgage backed securities for capital. Investors need to buy the mortgages from the originators, and the rates are determined by their pricing models.
As a previous poster noted, mortgage rates follow the 10 year treasury most closely. The spread between the 10 year and mortgage rates has been increasing due to increased fears of inflation (which the fed cuts make even worse) and the general perceived riskiness in the mortgage market (forclosure rate?). As such, investors are saying they'd rather invest in other securities because the rates are not paying them enough for the risk they are taking. That is why rates sometimes go up when the fed cuts.
You need to be careful, mortgage rates are prospective rates and unemployment data is retrospective data. Data collected at time t may in fact reflect time t-1 and forward rates at time t+359. Further, the mortgage market has itself changed over time being deposit funded and insurance reserve funded twenty years ago and mutual fund owned today. That creates different owners with different liabilities.
Finally, time series regressions are very difficult to do correctly. It is an entire field in itself.
Unemployment is related to bond prices because higher unemployment levels tend to result in lower inflation, which makes bonds safer and permits higher bond prices, so there should be a positive relationship with prices but a negative relation with rates. However, a mortgage could be thought of as 360 forward obligations and the current unemployment level does not reflect future beliefs about the economy in a direct manner.
If you find a positive correlation that is very strong, there is also a possibility that you have a unit root problem and your t-tests are misspecified. The significance could be spurious. It partly depends upon whether the relationship is stationary or not. If you are running your tests using an ordinary statistics package, it is likely your correlation method is invalid.
I like that your asking about a good mortgage… not the BEST. There is no BEST out there. If your friend likes the rate (more importantly the payment) then he should be ok.
Find a loan officer you like and can trust. When you get the good faith estimate keep in mind that the items from the loan officer are going to be:
Origination, Mortgage Broker Fee, Processing, Credit Report and if they are sneaky an application fee.
Most of the items the loan officer discloses to you are in fact 3rd party fee's and in reality we have little control of this… Especially with a purchase since many of the service providers are picked by the agents.
Appraisal, tax service, underwriting, title/escrow, notary, doc prep etc… Also taxes and insurance.
Expect title and escrow to cost a pretty penny. Keep in mind that the companies that are used are typically picked by the agents but it is a negotiable item in the contract. If you shop around you maybe able to find better pricing. Make sure it is better for both you and the seller or the seller most likely will not be willing to change companies.
Regarding the rates… depending on the loan amount, credit, documentation etc… they may be great or they maybe on the high side. Without knowing the scenario it is hard to tell if the pricing is right in line; however 6.25% is not a bad rate.
Good Luck
Kevin 866-562-6838 x 106
kruorock@firstratelending.com
The Fed rate is a short term bank loan rate. This does not directly affect Mortgage rates, but inflation does affect mortgage rates.
There are multiple indices that are used by mortgage holders to adjust a mortgage rate. some are tied to t tresury bills, some are tied to the LIBOR rate.
You will need to check with the mortgage holder, (or just check your original mortgage contract) and find out what index your mortgage is tied to, and what the"spread" is. (The spread is the additional % added to the index).
Nobody can lock a rate for you until they have a complete application and credit report from you.
Many different types of mortgages exist today, and some have start rates as low as 1.9%. If you want a traditional mortgage, fixed and variable rate options have different rates.
You may get something in the 5.75% – 6.50% range, but again there are many factors that go into your rate. Talk to a mortgage broker in your area, and see what options are available to you.
$10K for a down payment may limit you to an FHA loan. You would try to get your Realtor to have the seller kick-in the down payment and closing costs, so that you can use the $10K towards reserves. You will need two months' PITI payments in reserve, in addition to your down payment and closing costs.
Even with just 3% for the down payment and 3% for closing costs, you don't have enough money. If you are making $150,000 combined and only have $10,000 in savings, my gut feeling is that you are not yet ready to buy a home. Based on the numbers, I'm not sure you can afford it, because you must have quite a bit of debt that you are supporting or an extravagant lifestyle not to have more money saved.
I would recommend that you find out what your total monthly cost of ownership for a house at $200K would be. Include PITI, HOA fees, maintenance, and utilities. From that number, subtract your current payments for these items. Take that difference, and deposit it into a savings account every month for the next year.
If you do this, you should then be able to cover your closing cost requirements, and you will know that you can handle the costs of owning a home. Real estate prices and interest rates will not move drastically in the next year, so you won't really be hurting your position by waiting. This exercise will let you know if you can really afford a house.
Good luck, whatever you decide.
An application fee is crap, typically a reputable lender will not charge this fee. I strongly suggest you stop using internet lenders and toll free numbers. Contact local lenders and I suspect you will not have to pay to kick the tires.
Be sure to compare more than interest rates, ignoring potential closing costs could cost you thousands.
Ask to be pre-qualified (so you know to what amount you could potentially spend), the interest rate you can expect, estimated closing costs and potential monthly payment. Know your budget, if you can afford about $1,000 a month, do not lock yourself into a $1,500 a month payment because a lender said you were pre-qualified for that amount.
SHOP, SHOP, SHOP-until you find a deal that convinces YOU it is the best. Remember there's more to it than just the rate.
1. Get a copy of your credit report and correct any errors.
2. Do what you can to get your score up-even 30-40 pts makes a difference.
3. Then shop til you drop for the best deal. On line lenders can save you a lot of time.
If you are in the market for a mortgage, home equity loan, or refinance get up to 4 FREE No Obligation Mortgage Rate Quotes at http://www.m-o-r-t-g-a-g-e-r-a-t-e.com
LEARN HOW you can save some serious money with
http://www.h-o-m-e-e-q-u-i-t-y-l-o-a-n.com and FREE Home Equity Loan Information
Get details on a FREE HOME SECURITY SYSTEM http://www.h-o-m-e-s-e-c-u-r-i-t-y.com