Mortgage Rates can come in three different forms. The first and second being, variable and adjustable interest rates, are similar in that they are both defined by the Prime Rate. The third being a fixed interest rate, which locks in the rate so that your payment is the same for the term of the mortgage.
The interest rate is attached to the Prime Rate. When the Prime Rate changes, your payment will stay the same, but the pace at which you paying down your mortgage will change.
Similar to a variable rate, however, when the Prime Rate changes, your payment amount changes too. At the same time, the pace at which you are paying down your mortgage will remain unchanged.
The interest rate is locked in for the duration of the mortgage term. For example, a 5-year fixed-rate mortgage at 3.00% means your payment will stay the same for 5 years.
Below are charts showing the Bank of Canada’s Prime Interest Rate in (Blue) used by Canadian Banks for their Variable Rate Mortgage Products. The (Yellow), (Orange) and (Green) represent 1, 3, and 5-year Conventional Mortgage interest rates, which are used by Canadian Banks for their Fixed Rate Mortgage Products.
It is important to note that these are the Banks Posted Rates and are not necessarily the rates you would receive but act as a starting point. These posted rates are used by larger banks to calculate the penalty if you “break” or pre-pay your mortgage.
The 5 Year Conventional Rate, (Green), is used as the “Benchmark Rate” or commonly referred to as the qualifying rate, which is the rate used to calculate the approved mortgage amount.
Here is the Bank of Canada’s Interest Rates since 1980. As you can see, there have been significant changes when looking back in the ’80s, and early ’90s, with the highest rate at 22.75%. In this era, rates where high, but the cost of homes was substantially lower. Within the last ten years, we have seen the reverse. Mortgage rates are at an all-time low while the price of homes has been on the constant rise. When comparing these two distinct times, the cost of borrowing is about the same. This is worth noting, as it’s not always about the rate!
O.A.C. Terms and Conditions Apply. Rates are Subject to Change without notice