Canadian mortgage rates have recently reached an all-time low. While independent lenders are offering aggressive pricing to attract borrowers, Canadian fiscal policymakers are working to make lending requirements more strict than they are now to cool down the hot real estate market. The tightened rules for lending in Canada may disqualify some home buyers for a loan, but those who can put 20 percent down on their home are not having any difficulty finding a low interest mortgage loan.
How Outside Investors Impact Mortgage Rates
You might wonder what outside investors have to do with your mortgage rate. Once you learn about mortgages, you will understand that these investors play a major role in the marketplace. When you are getting started, you need to know how the industry works. When a lender offers you a home loan, they generally do not hold onto the risk. They will put the mortgage in a pool with other mortgages and sell mortgage-backed securities to outside investors. When there are more investors, it is cheaper to finance loans. When investors are skeptical, the lender must charge higher interest rates to account for the increased risk.
Economic Issues and New Policies
Two very important factors that will play a role in determining mortgage rates are the economy and new policies put into place by policymakers. When the economy is concerned, inflation can drive mortgage rates up. As the cost of food, transportation, and fixed income investments like the mortgage-backed securities discussed go up, mortgage rates will start to increase. Essentially speaking, the more risk that is present for the banks and the investors, the more interest.
New lending policies can also affect how much borrowers will spend on interest. While you might think that policymakers would like to keep the interest rates low, they are currently constructing new policies to raise interest rates in an attempt to cool down the market. These policies may not address interest now, but they do address the maximum amount that can be borrowed and the amortization periods. If the policymakers see that the trend in the market continues to resemble the subprime mortgage disaster in the US, policies may start address interest rates as well.
Your Personal Credit History
Lenders have underwriters who will review your person credit history to see if you are a risky borrower. While you might think that your score is the only factor the underwriter considers, the lender will consider more than just that. While your score is important, your debt-to-income ratio and other ratios are considered. This helps the lender see that you can afford to pay your mortgage payments.
While financial experts in Canada expect that mortgage rates will remain low, you never know what can happen in the future. A global catastrophe, a change in supply and demand, or inflation, can lead to higher rates. Now that you know how rates are influenced, you can determine when the best time to borrow is.