Mauricio Navarro

Those considering buying a home are always interested in interest rates because this will affect the total price of the home and the monthly mortgage payment. Mortgage rates change quite frequently, going up and down on a regular basis. Homebuyers should follow mortgage interest rates and buy when mortgage rates are down. It's difficult to understand what affects mortgage interest rates and why they fluctuate. Nevertheless, it is important to have a good understanding of mortgage rate basics.

The Basics

The lender of mortgage rates is the originator of the loan and this is most frequently a financial institution of some type. When a mortgage is approved and funded the borrower, you, are given the money. Then, you turnaround and pay the seller of the home the money. What is leftover is your mortgage, what you owe the bank.

Interestingly, the financial institution that funded your mortgage is not stuck with it. They may choose to keep it or sell it. When the originator of the loan keeps it in their portfolio the money you pay each month pays for the interest on the loan and the bank makes money this way. If they sell the loan, then they have more funds in their control to make more loans with. It may not seem like it, but this buying and selling of mortgages affect mortgage interest rates.

Who Affects Mortgage Interest Rates?

Many people have heard a lot about Fannie Mae and Freddie Mac recently. They are government-chartered companies that may buy up mortgages as secondary market investors. Their good business practices or lack thereof, trickles over into the overall market and affects interest rates. Pension funds, securities dealers, and even insurance companies are part of the secondary market and able to buy up mortgages. These investments are liquid and are bought and sold quickly and easily, in most cases.

Now, the details of how the secondary market will affect you as a potential homebuyer. The investors in the secondary market want to make as much money on their investment as they can, which is why they are in business in the first place. The amount of return on their investment is completely dependent on the status of the economy and the perceived status of the future of the economy. When the economy is doing extremely well then returns in the future are anticipated to be higher than current returns. When this happens most investors choose to wait until the higher yields exist to make purchase. When this happens mortgage rates increase because lenders are unable to sell their loans for lower returns.

When the economy is not doing well, even in a recession, investors are anxious to buy the loans that are available to avoid the loans that are available with lower yields in the future. Since investors are trying to buy everything before yields drop, interest rates go down. This is the time when potential homeowners want to buy a home because it can save you thousands of dollars over the life of your loan.

- Toronto Mortgage Rates

The real estate industry in Canada is big business. So big, in fact, that it's a near certainty that you or someone you know is involved in Canada real estate-either as a real estate agent or a mortgage consultant. But while having someone you know and trust in the industry makes it easy to get help with your home loan, that doesn't mean that your contact will be able to make you the best offer. Therefore obtaining multiple Canada home loan quotes is always the best course of action.

Here are three key components to think about when comparing Canada home loan quotes:

#1: What is the term for the home loan?

The most common Canada home loan terms are 15-year and 30-year mortgages. Home loan quotes for 15-year mortgage tend to have lower interest rates than 30-year loans but, because they have a shorter payback period, 15-year home loan payments are also usually higher. The lesson learned: Make sure that the quotes you're comparing are for the same home loan term.

#2: What are the fees associated with a given quote?

Most potential Canadian homebuyers focus solely on the mortgage interest rate when they request a home loan quote. Don't make that mistake. When requesting a quote, pay attention to the mortgage interest rate as well as the loan origination and closing fees that you would incur if you chose that loan. Why? Well, it's likely that across multiple quotes, you'll have some similar interest rates. Therefore, fees may need to be your basis for comparison.

#3: What are the conditions of the loan?

It's important to know the conditions associated with each loan you're offered because there are a variety of stipulations that can be placed on a loan. Ask about pre-payment penalties and find out when the home loan quote expires / how much time you have to lock in an interest rate. It's also a good idea to make sure you know at what point and how you can renege on a Canada home loan if you decide to move forward with a loan and subsequently change your mind.

Bottom line: Don't make a rash decision when seeking a Canada home loan. Find a mortgage lender you trust. Ask questions. Take the time to compare. If you ask the above with every mortgage consultant when requesting a home loan quote, you'll have be able to clearly see which home loan opportunities are the most advantageous for you.