Understanding home finance and choosing the right mortgage can be complicated. Finding someone competent, who can guide you through the process and remain objective, is a challenge. I’m constantly offered rate promotions and specials by dozens of competitive lenders, so my rates can change daily or even hourly. To reassure you that talking to me is worth your time, here is my Bottom Line “Apples to Apples” Best Rate Guarantee:
Best rate guarantee:
I can guarantee your rate is in the best 1% of all rates in Canada. If you receive an unconditional approval from any recognized lender offering a lower rate on the same or better terms, I’ll beat it or pay you $500 cash when your mortgage closes. Once you’re approved, I’ll watch for lower rates. If another lender advertises a rate that’s more than one-tenth percent lower, and your lender won’t match it, you can switch lenders at no cost. It’s always your option. I’ll also check your rate before closing. If the lender you’re approved with has cut its rate for your mortgage, and there’s time to rebook the lower rate before you close, I’ll make sure your rate drops.
Bank mortgage rates are not always the best:
While choosing a bank for its reputation might initially seem like the soundest decision, don’t make the mistake of believing that they are the best source for mortgages in Canada. Banks try to offer their clients posted rates, which are typically 1.50% higher than rates provided by great brokers. Sticking with a broker when shopping for a mortgage will ensure that you receive the best mortgages and rates in Canada. Banks like to say they have the best mortgage rates in Canada but if you are lucky enough to actually receive a competitive rate from them, it is usually after weeks of negotiation and stress. Who needs that? I’ll help you to simplify the process and provide you with the best possible mortgage rates up-front and for free!
What is The Prime Rate?
The Prime Lending Rate in Canada is a guideline interest rate charged by banks on loans for their most creditworthy or “best” clients. The actual minimum rate, however, may differ slightly from lender to lender. Banks and lenders in Canada do follow the prime rate in order to remain competitive, but at the same time, they may add their own monetary spread to the prime rate. For example, when the prime lending rates were high, many lenders in Canada were offering variable rates at prime minus .90 percent. If the prime rate is low, lenders could potentially offer variable rates at prime plus a percent. This model of prime rate tracking allows lenders to remain highly competitive while still adhering to the fluctuating interest rate of prime.
Influences on The Prime Rate:
Canada’s prime rate is influenced primarily by Canadian economic conditions. The Bank of Canada adjusts it directly, depending on the state of the economy. The Bank of Canada, therefore decides what interest rate prime should be set at and for how long. This is vital to the growth and stability of the country.
Economic ups and downs in a country like Canada directly affect the ability of banks, companies, and consumers to spend money or to provide goods and services. These ups and downs are driven by various factors in employment, manufacturing, and exports. All of these things, taken together, affect the inflation rate. When inflation is high, the Bank of Canada must act quickly to avoid an overheated economy. In this case, they react by increasing the prime rate, thereby making the act of borrowing money more expensive. This has the effect of cooling off the economy so as to control the rate of inflation. Likewise, in cases where inflation is low, the Bank of Canada will decrease the prime rate, so as to heat up the economy.
The prime rate only changes when the Bank of Canada decides it is necessary to boost the economy or to slow it down. In November of 2000, the Bank of Canada introduced eight fixed dates each year where they would announce any rate changes. Announcements for changes of many other Bank of Canada-influenced rates, such as the overnight rate target, also share the same dates. These dates do not necessarily guarantee any movement of the prime. They are simply dates on the calendar where the prime rate can be changed if required. There have been times over the last decade where the prime rate was not changed at all for long periods of time.
How the prime lending rate influences the mortgage market in Canada:
In the Canadian mortgage market, the prime rate is used for calculating and lending money on variable rates or line of credit mortgages.
A variable rate is typically a closed term, either 3 or 5 years in length. Usually, depending on the economy and availability of mortgage money during a particular cycle, variable-rate mortgages will follow prime rate less a set discount. For example, some variable rates will have a Prime Rate minus 0.10%. Today, the prime rate is set at 2.45% and the best variable rate is 1.30%, which is Prime minus 1.15%.
A line of credit will typically be based on the prime rate plus a percentage or basis point count. A line of credit in Canada is a very popular form of borrowing and regardless of the lender you deal with, they all follow the prime rate lending model so there is very little variance from institution to institution. Regardless of whether it’s a variable mortgage or a line of credit, they are both heavily based on and follow the prime rate in Canada. When the prime rate changes, so too can the variable rate or line of credit interest calculation that is used for your loan. Making sure you understand the prime rate and how it is tied to our monetary system and the Canadian economy will make things easier when it comes to deciding what options you choose when borrowing money.