You’ve probably heard all the talk in the media lately about rates, but if you don’t understand what all these changes mean, you might be missing out the positive message being relayed—that now is a great time to buy a home. To help give you some clarity on this, we’re going to break down what determines mortgage rates and why the recent changes in the marketplace are a benefit to homebuyers.
How are mortgage rates determined?
Variable rate mortgages and lines of credit are based on the prime rate, set out by the Bank of Canada, and the overnight rate (which was recently changed) often impacts what the prime rate will be as well. Fixed mortgage rates move in line with the bond market.
What are the recent changes in the mortgage industry?
Earlier in April, the Bank of Canada announced that they would keep the overnight rate unchanged at 0.75%; what this means is that prime rate on mortgages remains unchanged at 2.85%.
While that wouldn’t qualify as a change, Genworth Financial and Canada Mortgage and Housing Corporation (CMHC), the two largest mortgage insurers in Canada, announced this month that they would be increasing their rates for first-time buyers. First-time homebuyers who have less than a 20% down payment, must buy mortgage insurance from one of these lenders, and starting June 1, 2015, rates are increasing from 3.15% to 3.60%.
What does this mean for homebuyers?
The benefits of the marketplace lie in the hands of homebuyers right now, since mortgage rates are still historically low, and the Bank of Canada plans to keep their overnight rate unchanged while the economy stabilizes. But, these ideal conditions won’t be around forever, and especially for first-time homebuyers, getting in the mortgage market before the insurance premiums increase would be beneficial.