12 Jul What are interest rates?
Perhaps the most used term when it comes to mortgages, but one many people still don’t really understand. What are interest rates? We want to pay the lowest percentage possible. But do we know what they actually are and how this percentage is calculated?
You are planning to buy a home. You need a mortgage to help you pay for this home. Your first step is to see a mortgage broker to get your pre-approval. So, now we will introduce interest rate term to you. First of all, borrowing money – a mortgage – means you will have to pay interest. It is applied to the amount of money you borrow from your lender. This is paid during the amortization period (see blog post on this topic). These are the interest rates.
Another important piece of information is related to the “roller coaster effect” of interest rates, meaning they will increase and fall over the period of your mortgage. The economy determines whether or not rates fall or increase, as the Bank of Canada analyses how the economy is doing to determine what interest rate should be implemented. This review takes place eight times in one year. “The Bank of Canada uses this information to set the prime rate (otherwise known as the prime lending rate), which Canada’s major banks use to set interest rates for variable mortgages and other loans. The prime rate is primarily influenced by the Bank of Canada’s overnight rate — the interest rate at which banks borrow funds from one another overnight”.
You need to know that the interest rates available to you are determined by your debt, your credit score and history, the amount of money as a downpayment, as well as they type of mortgage you decide to get. You should also know that rates vary from lender to lender – this is why it is so important to go with a mortgage broker, as we have access to all this information.
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