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Whether you are a first-time homebuyer in Brampton or are wanting to refinance your home loan, mortgage rates largely affect you. Understanding rates and why they change is important when analyzing your affordability and looking for your dream home.
What Influences Mortgage Rates?
Brampton mortgage rates periodically change due to how well the economy is doing. This can affect fixed rate and variable rate mortgages. Some factors that could affect this change is the rate of unemployment, inflation, consumer purchases, and the residential market.
Fixed Rate Mortgages
A fixed rate mortgage is a loan where you are given a predetermined rate that never changes throughout the duration of your loan term. Fixed rate mortgages are affected by the Government of Canada bond yields. These yields have a negative relationship with bond prices, meaning that when the bond prices increase, the opposite occurs to the bond yield, and vice versa. Fixed rates, on the other hand, have a direct relationship with bond yields; when bond yields increase so does fixed rates.
When the market is doing really well, the bond prices will go down, which means the bond yields will rise and the fixed rates will rise. If the market is doing bad, the bond prices will go up, bond yields will decrease, and fixed rates will decrease.
Variable Rate Mortgages
Variable rate mortgages are a loan where your rates can fluctuate throughout the loan amortization period. These rates change due to the overnight rate, which is determined by the Bank of Canada. How much the overnight rate changes largely affects the ratio between lending and borrowing. This directly affects the prime rate. The prime rate is the interest rate that banks offer their best clients. So if prime rates increase, then so does the client’s variable mortgage rate. If prime rates decrease, then the variable rates will also decrease.
Contact Us
For more information on mortgage rates and why they change, please contact your local mortgage broker in Brampton at 905-791-100.
