A fresh take on rates

Mortgages might seem like a maze, but at Pine, we believe that making informed decisions about one of the biggest financial commitments in life should be as straightforward as possible. Canadian mortgages offer a spectrum of terms, lending rates, and lending options. So, where should you start? Our guide below breaks down the essentials.

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What is a "good" mortgage rate?

When we say "good," we're not just referring to numbers. It's about what works best for your budget and future plans. A competitive rate often sits below the standard rates presented by big banks. However, it’s not just about the rate— the terms, conditions, and the fine print are just as crucial.

What are the factors that affect the mortgage rate I get?

Embarking on the path to homeownership? Here's a comprehensive look into the crucial factors that can affect your mortgage eligibility and the rates you receive:

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1. Credit score: This numerical representation of your financial responsibility holds significant weight. It offers lenders a glimpse into your past credit management. A high score, typically 650 and above, can qualify a customer for the best mortgage terms and lowest rates, other factors being held constant. But if your score isn't stellar, fear not. Some lenders specialize in catering to lower scores. The downside is that interest rates quickly go up the lower the score.

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2. Stable income & employment history: Lenders appreciate consistency. A regular income, irrespective of its source - from traditional employment to freelance engagements or periodic investments, indicates your ability to manage ongoing mortgage payments. Maintaining an employment history in the same field for two or more years can further boost your application and is usually required by most lenders. If self-employed, expect to furnish business records or tax returns to verify your income. This is a more onerous process.

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3. Gross Debt Service (GDS) and Total Debt Service (TDS) Ratios: These pivotal metrics offer a glimpse into your financial well-being by comparing your monthly obligations to your monthly pre-tax income. Although a lower percentage is preferred, it isn't the sole criterion for lenders. A considerable down payment or ample reserves can at times balance out a higher ratio. GDS and TDS ratios need to meet specific thresholds for an underwriter to approve a mortgage. This is typically 39% for GDS and 44% for TDS. To learn more about how GDS and TDS are calculated, take a look at our debt ratio guide.

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4. Down payment & loan-to-value (LTV) ratio: In Canada, a larger down payment can potentially result in better mortgage terms and reduced loan interest. While 20% is a common benchmark, even smaller contributions can make a difference. The LTV ratio, which relates the loan amount to the property's value, also plays a pivotal role in rate determination. For insured mortgages, customers can expect to find the best rates when they put the minimum down payment. For uninsured mortgages, customers can expect lower rates when they have larger down payments.

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5. Property appraisal, type, and use: Beyond determining the property's value, appraisals ensure you're making an informed investment. Lenders also factor in the property type and its intended use. When the valuation aligns with or exceeds the purchase price, it's a win-win, smoothing out the mortgage process. Appraisals are done by third-party professionals and are assisted by home market data of previous sales from the surrounding area of similar properties.

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6. Economic indicators: The broader economic heartbeat, from national prosperity to monetary decisions by entities like the Bank of Canada, sends ripples through the mortgage rates ocean. A thriving economy might see rates inching up to balance things out. For instance, when the economy is booming, rates might rise to curb inflation. Mortgage rates are all about timing. Interest rates are always fluctuating around the economy. Locking in a low rate for 5 years can save you thousands of dollars.

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7. Mortgage type and term: The term of your mortgage, whether it's a short-term (like 2 years) or long-term (like 5 years) loan, affects the rate. Shorter terms often come with higher rates as they provide you with more flexibility. Additionally, fixed-rate mortgages might have different rate structures compared to variable-rate ones.

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8. External market dynamics: The housing market's pulse affects mortgage rates, influenced by both local economic conditions and broader global events. A high home demand can elevate rates, while market downturns might trigger promotional rates to encourage borrowing.

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9. Lender specifics & rate lock duration: Every lending institution, from banks to online platforms, bases its rates on its unique risk assessments and strategies. Some even offer 'rate locks', securing a rate for a certain period during the home buying process. At Pine, our commitment letters lock in rates for 120 days.

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While these factors serve as a roadmap to understanding mortgage rates and the qualification process, it's crucial to recognize that both rate determination and qualifying for a mortgage are complex processes, often tailored to individual circumstances. Being prepared, staying informed, and consulting with experts can ensure you're well-equipped to navigate the mortgage landscape and secure the best possible rate for your home loan.

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Choosing between fixed-rate and variable rate mortgages

Navigating the complexities of the home-buying journey often leads prospective homeowners to a crossroads: Should they select a 5-year fixed mortgage, a 2-year fixed rate mortgage, or perhaps a 3-year fixed mortgage rate? On the other side of the spectrum, there are options like the standard variable rate, 5-year variable mortgage rates, or the adjustable rate mortgage. Each offers its unique blend of advantages, fitting different financial situations and risk appetites. Let's delve deeper:

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Fixed-rate mortgages: 5 year fixed, 3 year fixed, and beyond

The allure of fixed-rate mortgages, whether you're eyeing the 5-year fixed rate or the best five year adjustable rates, lies in their consistent nature. By opting for a fixed rate loan or any fixed interest mortgage, you lock in a consistent interest rate for the term's duration. This ensures that homeowners are shielded from unexpected hikes in their monthly obligations. Such an approach, which could include a 5-year fixed rate or the best fixed mortgage rate available, provides homeowners with a sense of financial security. This predictability makes budgeting straightforward. With fixed rates, every dollar and cent allocated to the mortgage is known in advance. Furthermore, in a landscape where interest rates might be rising, having a fixed interest rate mortgage means your payments remain unaffected.

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However, fixed rates, come with certain nuances. Typically, these rates might start off slightly above their variable or adjustable mortgage counterparts. While you gain stability, you might miss out on potential savings during periods when market rates dip.

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Variable and adjustable-rate mortgages: From standard variable rates to 5-year variable

Initiating your mortgage journey with variable home loan rates, such as the 5-year variable mortgage rates, often means lower starting rates compared to fixed-rate mortgages. Consequently, these variable interest rate mortgages could lead to initial savings. Moreover, if market rates fall, you might benefit from reduced interest payments throughout your loan term. Another notable characteristic of the variable and adjustable interest rate mortgages is the flexibility they bring. For instance, if you started with a variable rate mortgage, you might have provisions to switch to a fixed rate during your mortgage term, allowing you to adapt to evolving market conditions.

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However, with variable and adjustable-rate mortgages, there's the element of unpredictability. Your monthly payments could fluctuate, potentially making budgeting a tad challenging. If market rates surge, your interest payments might escalate, possibly surpassing what you would have paid with a fixed rate.

Selecting a mortgage term to minimize rate

When embarking on the home-buying journey, the choice of mortgage term is a decision that holds significant weight. The term of your mortgage can shape your financial commitments in both the short and long run. Let's unravel the concept and arm you with the information you need to make a confident choice.

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What is a mortgage term?

In simple terms, the mortgage term is the duration for which the details of your mortgage contract, such as the interest rate, are effective. At the end of the term, you'll either need to renew your mortgage or pay it off in full.

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Factors to consider when selecting a term:

1. Financial stability

Your upcoming financial outlook plays a pivotal role in your mortgage choice. If an increase in income or a significant financial change looms on your horizon, a shorter term can offer the flexibility many Canadian home buyers seek. Conversely, for those eyeing a stable interest rate and consistent monthly payments, longer mortgage terms provide that peace of mind.

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2. Market Conditions

Being savvy about the Canadian housing market and interest rate trends can shape your mortgage term decision. If you're forecasting a rise in mortgage rates, safeguarding your finances with a longer term can be prudent. If a dip in rates seems probable, a shorter term might be a more strategic choice for home financing.

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3. Risk Tolerance

Every homebuyer has a unique financial comfort zone. Those leaning towards safety and predictability often prefer longer mortgage terms, given their stable rates. Yet, adventurous investors or those comfortable with market volatility might find shorter terms more appealing.

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4. Long-term Plans

If you're considering a move or foresee selling your property, a shorter term offers the adaptability to accommodate such life changes without incurring hefty mortgage penalties.

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5. Renewal Considerations

Your chosen term dictates the frequency of mortgage renewals. A short term means revisiting your mortgage options more often, which, while allowing for market-responsive adjustments, demands more of your attention. Lengthier terms offer fewer renewal interruptions, although you might miss out on consistently securing the best rates.

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Mortgage rate comparisons

The world of mortgages can be overwhelming, especially when trying to find the most favorable rate for your home purchase. Navigating this landscape requires a keen understanding and comparison of the available options. Let's delve into the intricacies of mortgage rate comparisons to empower you with the knowledge to secure the best possible deal.

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1. Why compare mortgage rates?

Mortgage rates can vary significantly between lenders and regions. By taking the time to compare mortgage rates, you put yourself in a prime position to find the best home mortgage rate available. This diligence can result in significant long-term savings and can considerably reduce the total interest paid over the loan's lifespan.

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2. How to start your comparison:

Utilize specialized tools and platforms that offer mortgage comparison services. These tools often provide up-to-date data on mortgages rates today and allow users to juxtapose different offers. Especially for regions like Ontario, where variability in bank mortgage rates is noticeable, tools like these are invaluable. The lowest mortgage rate in Toronto, for example, might differ from those in Ottawa or Hamilton.

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3. Factors to consider:

While the rate itself is critical, it's also essential to consider other associated costs and benefits. Look beyond just the number; delve into aspects like flexibility, penalties, terms, and other conditions. The best mortgage deals aren't just about the lowest mortgage interest rates but encompass a holistic understanding of what each package offers.

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4. Banks versus other lenders:

Often, potential homeowners default to their primary banks for mortgage options. However, while Canadian banks can be competitive, alternative lenders can sometimes provide more advantageous rates. It's beneficial to cast a wide net and include a diverse range of institutions to find today’s best mortgage rates.

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5. Keep an eye out for promotions:

Mortgage lenders with the best rates often run special promotions, offering potentially lower rates or other incentives to attract customers. While these might not always provide the most long-term value, they can be a good option for certain homeowners depending on their individual circumstances.

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The key to securing the best mortgage lies in thorough research and comparison. By taking the time to compare current mortgage rates and understanding the full scope of what each option offers, you're well on your way to making a decision that's both financially wise and personally suitable. Whether you're hunting for the best rates in bustling Toronto or peaceful Ottawa, a little effort now can lead to substantial savings down the line.

How much mortgage can I afford?

Understanding how much mortgage you can afford is paramount to maintaining financial well-being while owning a home. Overstretching can lead to financial strain, while underestimating can mean missing out on better properties. To help navigate this pivotal question, consider the following factors and steps:

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1. Evaluate your income:

• Gross Monthly Income: Begin by tallying up your monthly pre-tax earnings. This includes your salary, any bonuses, and other sources of regular income.
• Stability of Income: If your income varies (for instance, if you're self-employed or work on commission), it's wise to use an average of the past two years or consider a lower amount for safety.

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2. Calculate your monthly liabilities:

Next, make an exhaustive list of monthly financial commitments. This includes everything from credit card payments, auto loans, student loans, to any personal loans. Deducting these expenses from your income gives a clearer picture of what's left for potential mortgage payments.

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3. Factor in the down payment:

The more you can contribute upfront, the smaller your mortgage will need to be. Typically in Canada, a down payment of at least 5% is required, but a larger down payment can lead to better mortgage rates and eliminate the need for mortgage default insurance.

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4. Think about future expenses:

Perhaps you're planning for kids or foreseeing a potential career transition. Predicting these substantial shifts in monthly expenses ensures you remain prepared. Forecasting future expenses can provide a clearer picture of what mortgage payments will be feasible down the line.

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5. Understand the Total Debt Service (TDS) ratio and Gross Debt Service (GDS) ratio:

In Canada, lenders leverage the Gross Debt Service (GDS) and Total Debt Service (TDS) ratios to gauge your suitability for a mortgage. The GDS, which should ideally stay below 28%, encompasses housing-related costs, while the TDS (best below 44%) takes all debt into account.

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6. Use online mortgage affordability calculators:

Leverage Pine's online tools to simplify your home-buying calculations. Our mortgage payment and affordability calculators give you a clear picture based on interest rates, income, and down payments. Additionally, if you're considering adjusting mortgage terms, our refinance calculator is here to guide. Make informed decisions quickly and efficiently with Pine's suite of tools.

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7. Consult with a mortgage professional:

Consulting a mortgage professional is essential. Their expertise in the Canadian housing market offers tailored insights, guiding you to make informed decisions about what you can truly afford.

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Lastly, always remember that just because a lender offers you a certain mortgage amount doesn't mean you should maximize it. Your home should be a source of comfort, not financial stress. Stay within a range that allows for life's uncertainties and ensures you can maintain your desired lifestyle.

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Mortgages, rates and Pine’s process

At Pine, we understand that the world of mortgages and rates can seem complex. To make it easier, we're committed to educating our clients about every aspect of mortgages, from understanding the basics to making the most out of your home financing options.

Understanding Mortgages and Rates

Whether you're a first-time homebuyer or looking to refinance your current home, understanding mortgages and rates is crucial. In simple terms, a mortgage is a loan that you take out to buy property or land. The interest rate on this loan is what the lender, in this case, Pine, charges you for borrowing the money.

Interest rates can fluctuate based on several factors, including the Bank of Canada's benchmark interest rate, your credit score, and the overall economy. Keeping track of these factors and understanding how they impact your mortgage is critical in making informed decisions.

How Pine's Process Can Save You Money

At Pine, we've streamlined our process to help you save money. Our team of dedicated mortgage advisors work with you to understand your unique circumstances, helping you choose the best mortgage products with competitive rates.Beyond finding the right mortgage, we also help you understand how to manage your mortgage effectively to save money in the long run. From making extra payments to understanding when refinancing makes sense, we're here to guide you.