mortgage rates london ontario | Community Mortgage Movement

If you own a home, there’s a good chance you’ll do a mortgage refinance at some point. Few borrowers stay with their original home loan for a full 30 years; most either refinance or sell the property long before the full term runs its course.

When the borrower on a home loan has reached a stage where the terms of the first home loan are unsatisfactory, or costlier than they need to be, given the current economy and monetary condition, the borrower at times goes for a home refinance loan. When this happens the first loan is paid off and the same loan is supplanted with a refinance loan, though the terms can either be similar or different.

Smaller Repayments

When it comes to a refinance home loan, you may have the capacity to structure the loan in such a way that you may only have to pay a smaller amount of money at regular intervals. This could be extremely useful if your situation is a little tight due to monetary constraints.

Longer Time to Repay

Another advantage of home refinancing is that you can spread out a loan over more years by customizing the time to reimburse the loan. Spreading out a similar size loan over more years implies that the interest paid will be more, yet the repayment made will be more reasonable in size for the loan holder.

Fixed Amount of Payment

One of the other advantages when it comes to refinancing your home with a fixed rate is that the repayment sum will continue to be the same. Once the loan amount is set, the installment sum continues to be the same throughout the course of the mortgage.

Pay Off Old Debts

When you get cash as part of the home refinance deal, you can use some of that money to pay off old debt (especially those with high interest rates). A refinance can also help you pay off future costs as well. An example of this might be taking care of the cost of education for yourself or relatives. This money can also help with doing repairs towards the house.

There are many factors that influence the overall health of the Canadian economy; unemployment, inflation, consumer confidence and the housing market, just to name a small few.

Factors affecting the Fixed Mortgage Rates

One of the main factors that affects fixed mortgage rates is the Government of Canada Bond Yields. Fixed mortgage rates normally move in alignment with the Government of Canada Bond Yields.

Bond Prices and Bond Yields

There is a negative relationship between bond yields and the price of bonds. Meaning that when bond prices increase, the bond yields decrease and when bond prices decreases, the bond yield increases. Bonds are historically safer than stocks, especially Government issued bonds and due to this bond prices for Government bonds decrease when the market is booming and increase when the market is dipping

Bond Yields and fixed rates generally have a positive relationship. Meaning that when bond yields increase, fixed rate also increases.

Stock Market

When the Stock Market is booming, investors are more likely to make a higher return on investment equities than investing in bonds. This means that the demand for bonds decreases and as such the bond price decreases and the bond yield increases and this will lead to an increase in the fixed rate. On the other hand, when the stock market is dipping, and stocks do not look as enticing, investors are more likely to invest in safer investments, such as bonds. As such the fixed rate will likely decrease due to the price of bonds increasing, the demand for bonds increasing and the yield of bonds decreases.

Factors affecting the Variable Mortgage Rates

The bank of Canada is responsible for changes to variable mortgage rates because they determine the target overnight lending rate.

Variable Rates and Overnight Rate

The overnight rate changes the cost of lending/borrowing short term funds and therefore influences the prime rate. Meaning when the prime rate goes up, so will your variable rate and monthly payments, as prime rates are linked to variable mortgage rates.

Prime -/+

Variable mortgage rates are normally advertised as Prime plus or minus (insert rate here), which means the interest you pay is directly related to the Prime Rate and will fluctuate whenever these change. Let’s say the current overnight rate is 0.5% and the major banks prime rate is 2%, and at that time the variable mortgage rate is – 0.50% (thus 1.5%). If the Bank of Canada increases the overnight rate from 0.5% to 0.75% (an increase of 0.25%), the banks will likely follow suit and increase their prime rate by the same 0.25% to 2.25%. Your variable mortgage rate will thus also change due to this increase in the prime rate, making your new variable mortgage rate 2.75% – 0.50% = 1.75%.

Unknown Benefits of Opting for a Home Refinance

Mortgage Rates and Why They Rise and Fall