Mortgage Interest Rate Comparisons
Once you’ve made the decision to buy a new home, the buying process begins with estimating how much you can afford to spend. It’s important to look at the long term finances! Interest rates play a huge part in affordability! Keep reading to find out why!
Your mortgage is a substantial financial investment, likely the biggest investment you’ll ever make. That’s why your interest rate plays such an important role in new home purchasing. The smallest differences between mortgages and interest rates can result in huge savings (even over the course of a five-year term)! Comparing interest rates and keeping track of the prime rate increase is essential if you’re looking to get mortgage approved and new home ready.
What’s the Prime Rate?
The prime rate is based on the Bank of Canada. It sets the interest rate standards for all kinds of loans, not only mortgages. The lender you choose to work with will give you an annual interest rate based on the current prime rate. So, if the prime rate goes up–so does your interest rate.
One mortgage does not fit all!
Mortgages fluctuate and offer different perks to meet individual needs–it’s important to choose the right mortgage with a low interest rate so you can rest assured knowing you made the right money move.
Mortgage qualification and rates (for first time buyers).
If you have a good credit score, and your full down payment (at lease 5 percent down) you have mortgage shopping power! We highly suggest going to several financial institutions (lenders) to determine who can give you the best mortgage rate. If that’s too much work, there’s always mortgage brokers who can do the leg-work for you.
Here’s an example of how the smallest interest rate difference makes a big impact:
Purchase Price
$350,000
5% Down Payment
- $17,500
CMHC Insurance
(If you have less than 20% down payment, CMHC requires you to buy mortgage insurance).
+ $13,300
Total mortgage amount
= $345,800
Scenario 1
2.44% =$1,539 monthly
After the end of your 5-year fixed term, your paid off principal amount is approximately $53,476.
Which leaves you with a remaining mortgage of $292,324 when it comes to refinancing.
Scenario 2
1.78% = $1,428 monthly. After the end of your 5-year fixed term, your paid off principal amount is approximately $57,476.
Which leaves you with a remaining mortgage of $288,324 when it comes to refinancing.
That’s $111 monthly savings and $4,000 of saving in just 5 years and $20,000 over a 25-year amortization period!
*Calculation based off 25-year amortization.