The subject of interest rate movements is a complicated and convoluted one involving the monetary policy of the Bank of Canada and the analysis of the bond markets that can (and has) fill hundreds of books. Let's try to keep it simple here - hypotheque.
A borrower may think that it is the bank that controls what his interest rate on his home loan will be. The bank is really only reacting to the influences in the economic arena that determine mortgage interest rates:
-Variable rates are determined by the prime rate - pret hypothecaire. -Fixed rates are determined by the bond market.
The base rate is the rate the bank of Canada charges banks, and it dictates the prime rate that the major banks of Canada will set and this in turn will determine the variable rate on mortgages.
VARIABLE RATES:
Most people only consider the variable rate. They are happy when they feel they can get a 5 year variable home loan at 4.75%, when the 5 year fixed mortgage rate is 5.4%. This is short sighted, since variable rate mortgages go up and down with the prime rate. If the prime rate is, for example, 5.5%, the borrower with the 4.75% rate actually has a rate which is prime less .75%. When the prime rate increases, his variable mortgage rate will go up with it - hypotheque.
The prime rate is established at fixed intervals eight times per year. This is when the Bank of Canada fixes a new rate that may increase, decrease or remain the same in relation to the old one. It stays at this new level until the next adjustment period.
The prime rate is used by the Bank of Canada to control growth and inflation. The consumer price index (CPI) and the gross domestic product (GDP) are the benchmarks that BOC uses to determine the prime rate. (hypotheque)
If the CPI is increasing too fast, the Bank of Canada will want to slow inflation by increasing the prime rate to slow things down. The GDP indicates the growth of business activity in the country and if it is growing fast it too will influence inflation.
A weak economy with low inflation will usually push the Bank of Canada to lower rates; a strong economy and higher inflation rates will induce it to raise rates. (taux hypothecaire)
FIXED RATES:
Fixed rates are fixed by each lender and are also determined by many factors, the most critical of which are the lender's portfolio earnings and its cost of funds.
Banks and other mortgage lenders buy and sell the mortgages in their portfolios in a secondary market. They try to keep their portfolios balanced and also to increase the return on them
The investors the banks sell these mortgages to also invest in the bond market, so the secondary mortgage market has to keep up with the bond market. If the rates in the bond market go up, the banks will have to offer increased rates on their mortgage portfolios by increasing the rates on the mortgages they write. When the rates on the bond markets decrease, the fixed mortgage rates can come down to be in line with them. (pret hypothecaire)
Now you understand that the interest rate you will pay on your mortgage is determined by decisions made by banks, lenders and investors in the bond markets, the Bank of Canada, the CPI and the GDP. It is all linked in a complex structure that takes a lot of analysis by experts - taux hypothecaire.
What can an average consumer do? The best solution is to work hand in hand with a qualified mortgage counselor who understands all of the implications of these factors and how they will have an impact on your unique borrowing requirements. Only an accredited mortgage broker is able to explain these interest rate (as well as other) issues and determine what your strategy should be. (taux hypothecaire)
Why Track Mortgage Rates?
What is the main benefit of tracking mortgage rates? One good reason is simply that by tracking interest rates online, you can keep up with how the real estate market, and the mortgage market, is doing. If you are planning to obtain a mortgage, or are thinking of refinancing, this is need-to-know information, particularly in the case of refinancing, as current interest rates need to be at a certain level relative to your mortgage interest rate before refinancing is financially beneficial.
Another important reason to track mortgage rates online is if you are currently applying for a loan, and are hoping to lock in a low interest rate. To lock in a low rate means your lender makes a written agreement stating they will hold your interest rate at a particular level until the loan application process is finished. If interest rates rise during loan processing, you get to hold on to the lower interest rate you locked in. However, if you wait too long, and interest rates rise after you lock in your rate, then you still have to pay the higher rate.
So if you are hoping to lock in as low an interest rate as you can, it is important to keep track of interest rates online, both to get familiar with the market before you apply for a loan, and so that you can choose the best time to lock in your interest rate. Careful attention to the market is needed here, waiting too long, or locking in a rate too soon, can mean you do not get the interest rate you want (or can afford), so being able to track interest rates online is perfect, as you can check interest rates as many times a day as you want.
How Mortgage Rates are calculated
Tracking mortgage rates online is not always enough information though. It also helps to know how mortgage interest rates are calculated.
Interest rates for mortgages are set, indirectly, by the Federal Reserve Bank. This institution is crucial in keeping the economy working correctly: the Federal Reserve is responsible for seeing the federal funds rate and the discount rate, which together determine how much it costs lending institutions to borrow money. The lending institutions then set rates for mortgages based on these figures.
In cases where the economy slows down, for example, the Federal Reserve lowers interest rates. In turn, lending institutions lower mortgage interest rates, more people are encouraged to buy mortgages, and the economy starts turning over more quickly.
How to Track Mortgage Rates Online
Most banks, and other types of lending institutions, update the figures they set for mortgage rates once a day, or more often. This means that if you are planning to track mortgage rates, the internet is definitely the best way to do it, especially if you need to know instantly when the market changes.
So where do you go to track mortgage interest rates? Web sites such as Bankrate.com are favored by many consumers, and this site in particular does provide some excellent tools for finding out mortgage rates and other types of information. In fact, not only can you track mortgage interest rates, you can also track other information such as credit card rates, CD yields, insurance rates, and personal loan interest rates.
Tracking mortgage interest rates on web sites such as this is a fairly easy matter. You'll need to input some information, but nothing personal is needed, such as your zip code, the amount of your down payment, and the type of mortgage you are interested in, such as 30-year fixed, ARM, and other types. Depending on the web site you use, your results will include not only interest rates, but also annual percentage rates, point's costs and origination fees, interest rate locking fees, and monthly repayments. Most web sites will also include contact information for the lenders they provide rate details on.
Tracking mortgage rates online is easy, you can do it as many times a day as you want, and it is definitely worthwhile if you are interested in entering the housing market, or are looking to refinance. When you are making such a large financial commitment, it makes sense to keep abreast of interest rates. They are, after all, the single biggest factor that determines exactly how much that mortgage is going to cost you over the long term.
Both Gregory Van Duyse & Jeremyfoster5 are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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