Capital Mortgages opened in January 1999 and has since serviced thousands of clients and arranged several billion dollars in mortgages in Ottawa area.

The Pros and Cons of a Fixed Vs. Variable Mortgage

Choosing what kind of mortgage to get has historically been one of the trickiest decisions that an applicant can make. However, nowadays the difference between a fixed and variable mortgage is so apparent that the choice is becoming increasingly straightforward.

With only 20 basis points or less of price difference, variable rates are starting to seem less appealing. You’ll likely win for a year or so by floating your mortgage rate, but as the years go on, you risk higher borrowing costs.

As of the time of writing, many of the most competitive mortgage lenders are offering 5-year fixed term rates at less than 10 basis points above the lowest variable rates. 

When the prime rate fell drastically at the start of the pandemic, it lowered mortgage rates for variable-rate holders across the country. However, nowadays there is very little room for the prime rate to fall. Provided we don’t see a significant resurgence of COVID-19 or that the current economic recovery fails, interest rates as they stand right now likely won’t change for at least a year. That means that variable rate mortgages are less attractive than they used to be to new applicants.

The other risk with a variable rate mortgage is that if inflation begins to grow, you’ll reap the negative consequences. Fixed-rate mortgage holders pay a slightly higher rate but have the peace of mind of knowing that their monthly payments won’t change – which is especially comforting given the current economic climate. 

As an industry insider recently wrote, “Fixed rates are now so low that even a single quarter-point rate hike from the Bank of Canada – three to four years from now – could result in borrowers paying more interest in a variable than a 5-year fixed”. 

Would you like more clarity on the difference between a fixed vs. variable rate mortgage? Our team has decades of experience and can help shed some light on which is best for your financial situation. Give us a call at 613-228-3888 today.

Capital Mortgages opened in January 1999 and has since serviced thousands of clients and arranged several billion dollars in mortgages in Ottawa area.

Bank Of Canada Interest Rates Likely To Remain At Historic Lows Until At Least 2023

With Canadians and the Canadian economy facing an unprecedented level of uncertainty due to the ongoing COVID-19 pandemic, the Bank of Canada has reassured prospective homeowners that its interest rates will remain at a near historic low for several years to come. 

The Bank’s Governing Council released a statement saying that the policy interest rate would be held at its effective lower bound until the economy’s slack is absorbed, so that the 2 percent inflation target is sustainably achieved. Financial experts have analyzed that this likely means that the Bank won’t start raising its rates until around 2023. 

While adjustments to the rates ARE possible, they are unlikely as there is only a small chance that a surge in inflation will justify that the rates are raised within the upcoming years. The Bank predicts that inflation will remain at 0.6% in 2020, 1.2% in 2021 and 1.7% by mid-2022. That means that the fallout from the pandemic should be less evident in the economy by around halfway through 2022.

The reason you are probably reading this article, however, is to find out exactly what these low rates mean for prospective homeowners when making mortgage decisions. 

Most mortgages rates today, including insured 5-year fixed terms, are now available for 2.00%. That is a big difference compared to just a few months ago, when insured 5-year fixed terms were around 2.50% and uninsured ones were hovering closer to 3.00%!

The main question is whether to make use of these low rates at a longer term of 5 to 7 years, or choose a shorter fixed term or variable rate instead – given that existing variable rate mortgage holders have enjoyed big savings thanks to the drop in the prime rate from 3.95% pre-COVID to 2.45% today. However, new variable rate discounts aren’t exactly as competitive.

“Unless you’re able to find a variable rate at least a half-point under the best 5-year fixed rates from fair-penalty lenders, the risk-reward of floating your rate isn’t overly attractive,” writes Rob McLister, founder of RateSpy.com.

“Barring that sort of discount, if the BoC were to hike rates 100 bps in 2023, for example, you’d pay less in a 5-year fixed—assuming you didn’t break the mortgage early.”

Do you have questions about how the current interest rates can affect your mortgage decisions? We’d be happy to walk you through the process so you can make the most informed choice possible. Give Capital Mortgages a call at 613-228-3888 today.

Capital Mortgages opened in January 1999 and has since serviced thousands of clients and arranged several billion dollars in mortgages in Ottawa area.

The Reason Why Your Credit Score Is Different From What Lenders See

Most people believe that getting their credit report from Equifax or Trans Union Canada is the quickest and most accurate way of measuring their credit score and of forecasting whether they’d be approved for a mortgage. However, what many of them don’t know is that there’s actually no consistency among all of these financial reporting sources. Your credit score can vary drastically depending on different report providers and is rarely the same number that lenders will see!

It’s normal to be fixated on the concept of checking your credit report, since Canadians are so used to living by that golden number. In order to finance a car and even rent some apartments, a positive credit rating is needed. But in the case of buying a home, we recommend focusing on overall credit health versus a tangible credit score – specifically because lenders often order credit reports that are built to meet their specific needs.

To put it simply, the only credit score that matters in the homebuying process is the one that your lender sees when you submit your application. Chances are that you haven’t seen what this score is yet, even if your general credit hygiene would probably give you a good idea. 

Once you provide your signed consent for a lender to analyze your credit history, they’ll be looking closely at the FICO Score 8 on the report that’s generated. The overall report will display various measures to lenders, but this is the one they most often pay attention to and is the number that they cite when anybody asks about your credit score.

Over 90% of Canadian lenders use the FICO Score 8, including all of the big banks – you just can’t access it on your own. However, what a traditional credit report CAN do is give you an overall picture of your financial health and help you gain a deeper understanding of what you can do to improve it.

Wondering how to improve your credit score ahead of buying a home? Give us a call today at 613-228-3888 and we will be happy to offer you tailored advice based on your financial situation.