In this article, let’s take a look at the best mortgage rates in Canada in 2019.
To begin with, let’s quickly look at the current mortgage scenario in Canada and then we’ll dive deep into the best interest rates right now.
What Is a Mortgage?
“Mortgage is a legal agreement by which a bank or other creditor lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of title becomes void upon the payment of the debt”
Why do you need a Mortgage?
Mortgage is all about the borrower and lender.
The borrower pays the debt in payment that is pre-determined by the bank or financial institution.
If the borrower stops paying the payments due to any reason, the lender gets the rights to hold, sell or close down the property.
Borrowers have to pay back the mortgage loan in the pre-set number of years or months along with interest to own their property back.
Having a mortgage also provides an opportunity for businesses to expand their operations while reinvesting in their property. It also provides an opportunity for people to invest and reinvest.
As a result, the overall economy stabilizes itself.
Benefit’s Of Having A Canadian Mortgage [Pros]
In this section, let’s briefly discuss the benefits of holding a mortgage:
Like I said before, mortgage is a debt instrument.
However it has a couple of benefits, let’s look at it one by one here:
One of the many benefits attached to a mortgage is leverage.
Example – Let’s say you bought a property that was around 1 million CAD. You paid 200,000 CAD as the down payment and the rest 800,000 CAD on loan. The value of your property is appreciated in the market at the rate of 1% per month.
In 10 months, you earned an appreciation of around 10%. It means you earned a profit of 100,000 CAD against your 200,000 CAD investment.
Leverage is the concept where you make money out of bank’s investment or mortgage to you.
Since all the days are not alike, mortgage gives you a sense of add-on security.
Example – Let’s say you built a house worth 1 million CAD and the very next day; the earthquakes hit your house (god forbid never should happen still). Being the sole owner of your house, you will have to bear all the losses alone. On the other hand, you bought a building through a mortgage.
Your down payment was 200,000 CAD, and the rest 800,000 CAD loan. The earthquake hits your house. Your total loss in 200,000 CAD instead of 1 Million CAD.
The bank or your financial institution is legally bound to bear the loss along with you.
You can simply walk away from the mortgage deal keeping all your money, 800,000 CAD to yourself.
3. Newer Opportunities to Invest and Grow
The best part about having a mortgage is to invest the amount (loan amount) somewhere else.
Example – You bought a house worth 1 million CAD. The same scenario, you paid 200,000 CAD as the down payment, and 800,000 stayed as a loan.
You moved into the house. You are utilizing the asset that’s worth 1 million CAD against your 200,000 CAD.
You have 800,000 CAD in your hand compared to the person who bought the house on cash.
You can invest this amount somewhere else and earn better returns or profit against your investment.
This is what most of the businesses are doing in the market. They invest the loan amount and pay the payment of loans (instalments) to the bank by the profits they make against the investment. This way they can expand their operations and become more stable in the future.
The interest you pay on the mortgage for your property is deductible.
It depends on the interest you paid and the tax bracket you are in right now.
For Example – Let’s say you paid an interest of 30,000 CAD on mortgage annually. If you are in the tax bracket of 28 percent, you will get around 8,400 CAD deductions for interest paid while filing taxes.
5. Ownership Affordability
If you are a person who cannot afford to have a good house, the mortgage is right for you.
Let’s say you can only afford a house that is not big enough for your family.
You can make a down of a particular amount and own a better house that could be perfect for your family.
Example – You only have 200,000 CAD.
You surveyed the market and could not find a good place to live with your family.
You can make the mortgage deposit of the amount as a down payment and in-fact get a better house worth 1 Million CAD. The remaining 800,000 CAD can be paid off in a specified mortgage period.
However, if you cannot pay it, you can ask your lender to extend the duration for making payments or increase in some payments.
Mortgage provides you an affordable ownership of a property that you and your family require to live happily.
Mortgage Rates In Canada – Current Scenario
Mortgage interest rates in Canada are currently on the rise.
In last year alone, Bank of Canada increased mortgage rise three times in a very short span. It actually increased from 1% to 1.25% on January 17, 2018. The rate increased again on July 11, 2018, from 1.25% to 1.5% and it continued to rise to a figure of 1.75% on October 24, 2018.
The fixed rate has also experienced a significant rise.
In January 2018 the fixed rate for five years was 2.79%. It grew to 2.99% until April 2018. It continued till 3.13% in September 2018, and it was recorded 3.34% in November 2018.
The increasing trend has worried a lot of people and are worried about the affordability at the renewal time.
According to research, around 19% of mortgage holders have to renew their term year in 2019.
Out of the 19% mortgage holders, 82% have a fixed rate while 17% have a variable per-rate.
According to the research, the average fixed mortgage rate at the moment in Canada 3.65%.
However, there has been a significant decline in the average variable rate from 2.89% to 2.59%.
Mortgage and Home Owners Scenario
But the good news is that around 48% of the home-owners renewing their mortgage believe that either their rate would stay the same over the year or it will decrease significantly.
It is expected that over 76% of the homeowners will be renewing their mortgage plan in 2019; shopping around for the best mortgage rate. Canadian home-owners are usually expected to start looking for the rate around 120 days before their terms end up.
The 120 day term give us all ample time to switch to a new lender and complete all paperwork.
Mortgage renewer is expected to get a lower rate offered by the sender than the current rate. The reason could be the increasing competition between the lenders.
Homeowners renewing their mortgage go through a lender in the beginning, around 64%.
Whereas at the time of renewal time, around 66% of people switched to a mortgage broker.
The number rose from 36% to 66% in 2019.
Canadian Mortgage Rates in 2019
The competition between the lenders in the market is higher than it used to be in the last five years.
The homeowners are expecting to pay a lower rate than they ever did in the last five years considering the emerging competition in the market.
However, it is advised to start your market research as soon as possible. Search the best rate online and use a mortgage calculator online to see what their new monthly costs would be.
Prior market research could save you hundreds or thousands of dollars.
Best Mortgage Rates in Canada – 2019
Meridian Credit Union
Above is the table that shows and compares the rates of 5 banks in Canada. The above table shows the 5-year floating rate with their primes. It also shows fixed rates for 3, 5 and ten years.
In the given list, Meridian Credit Union has the best floating rate for five years. Whereas, the fixed rates of Scotiabank are considerably better than the rest.
By now, you’ll have a good understanding on Canadian mortgage and how it works here.
Also, I’ve discussed the pros and cons of having a mortgage and how it impacts your personal finance.
I have also mentioned the best mortgage rates in Canada right now.
Please let me know your thoughts and comments below.