What You Need to Know About Mortgage Rates

Purchasing a home is a major investment for many people. You have to keep your finances, credit history and job stability in mind before you decide to take a mortgage for your home. Interest rates, underwriting, pre-payment penalty are the other factors that need to be considered when you are in the market for a mortgage. Mortgage rates fluctuate from time to time and people generally take mortgages when the interest rates are low, so that they have to make smaller monthly repayments. You should have an idea about the prevailing rates in the market and understand how you can get low interest rates before applying for a mortgage.

Types of mortgage rates

In fixed rate mortgages, the interest rate remains constant over the time period of the loan. These mortgages are usually 15 to 30 years of duration. The advantage of a fixed rate mortgage is that the interest rate remains fixed and is not subject to any fluctuations that may occur over the loan tenure.

In a capped rate mortgage, the caps for high and low rates are fixed. You cannot pay below the lower rate and you don't have to pay above the higher cap either. There is a 'collar' or minimum rate of interest that you must pay every month. The time period offered for capped rate mortgages are generally the same as that for fixed rate mortgages.

Sometimes a discount is offered on a variable rate for a set time period of one to five years. You can get a discount of 2% on the variable rates for a specific time duration. You can also get different discounts for each year of the loan, such as 3% in the first year, 2% in the second, 1% in the third year.

A split rate mortgage is one where one part of the loan will have a fixed and the other a variable rate. The rates can be divided as 75/25 or 60/40, depending on how you want it to be.

How you can get a good mortgage rate

There are some factors, which determine how successfully you can get a low mortgage rate from a lending institution. For starters, a good credit score will be very helpful. As a low-risk borrower, lenders will be more than happy to offer you low rates as they have the assurance that the chances of default will be extremely low. If you have a poor credit history, then it is likely that you will be offered high rates to minimize risk to the lender. Fixing your credit score before applying for a mortgage will help you get a reasonably low rate.

If you have a stable job history and a fixed monthly income, then again you stand a good chance of getting a low rate on your mortgage.

For those borrowers who are confident of getting a good rate on their mortgage, the next challenge is to find a suitable lender or lending institution. Research and compare lenders on the internet or offline. Look at the different mortgage rates being offered and choose one that is low enough, but not too low to result in a hefty pre-payment penalty clause. Preferably, choose a lender from your city, someone who has a good reputation and enough experience in the field.


For more information on second mortgages or to talk to mortgage brokers, contact Canadian Mortgages Inc.