How do mortgage rates work (and how to find best rate!)


In this video we talk about mortgage
rates in 2019 – what are they – how do they determine – and how do you shop
around for them that’s starting right now. – Welcome to Homebuyer’s School brought to you by Brookfield Residential. – Hi everyone I’mk Karl, and welcome
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So today I’m joined by Mujtaba Syed, mortgage specialist with the Bank of
Montreal – and the question we’re going to answer today is mortgage rates in
2019. So I guess—well first of all, what do mortgage rates mean?
What are mortgage rates? – So the mortgage rate means—is
technically an annual percentage we call an APR, which is when you borrow money
to buy a home for example, you’re borrowing it from the bank and then
you’re returning it—and there’s a cost for that service so that’s why I kind of look at
interest rate is that this is the cost for the service provided which is
the interest rate that they lend you their money or money in general, and then
you just pay that back and it’s based on an annual rate, and is paid—it could be
paid monthly, semi monthly, bi-weekly, weekly depending on how
you want to set it up. – So where do I go to find the
most current mortgage rate? – You can go onto your bank’s website.
You can go onto your lenders website. You could do a quick google search.
Finding rates are not difficult, The only thing I would really
stress is go to a reputable source to find interest rates. Find it
from a reputable lender. Sometimes you see a really little rate and then you
get enticed by it and you realize that it’s an insurance company or it’s
something that’s a financial company that is not considered to be a bank. You
want to be able to see where those rates are coming from, what kind of terms and
conditions are attached to that rate. You might get a lower rate today but after
the five-year term when your term comes up, you might not be able to renew at the
same rate or they might give you a higher rate, you might not be able to
transfer, there could be a lot of stipulations. Sometimes when you do
decide which lender to go with it depends on more than just rate
alone. It depends on the terms and conditions in the mortgage and the
benefits added. So yes, definitely do your research but do research properly on
what rates to get and where they’re available. – So Mo, how our mortgage rates
actually determined? – So there’s two separate types of rates. So we have let’s see, the variable rate. The variable rates kind of based on the
overnight rate which is Bank of Canada. So that’s kind of based on prime rate. So
that could fluctuate based on what Bank of Canada wants to set their benchmark
rate—or their overnight rate at. And then the banks will have their prime rate on top
of the Bank of Canada’s overnight rates. Base rates on the other hand are actually
based on the bond market. So for example like, a five year fix is based on a
five year bond. Whatever the five-year bond yield is, there’s going to be
something similar to that five year fixed rate. So that’s a
really good question because a lot of people don’t seem to understand
that there are two different types of rates—how they’re calculated. It’s not
necessarily that since one is low one should be high. It doesn’t really
technically work that way. Sometimes you might have seen it be like that
but that’s not necessarily the case. As of right now we are going into a very
low rate environment so keep your eyes out, interest rates should be dropping in
the next few months. As we do know the five-year bond yield
rates are actually very low last time I checked. They’re trading at 1.45%
meaning that that’s technically the same amount of rate yields that were
trading around 2017 when we had little rates. I’m not saying rates are going to
come down to those levels again but we are in the market for lower rates. So
right now is a good time to get out, get a pre-approval done. Come to a Brookfield
show home, speak to an area sales manager because rates are
actually going to be in the decline. – Last question here is, how do you
actually shop for mortgage rates? – The best thing to do for shopping for
mortgage rates first and foremost is one, find out what is most important to you.
So terms and conditions to me are the most important thing in a mortgage.
So talking about skipping a payment— god forbid if you are sick, you fall ill,
you’ve missed work for a while—skipping payments is a really big one. So find out
if your mortgage lender can offer you those things first and foremost before
you start looking into the rate options. Some banks will have a relief program
they might have ‘take a payment vacation program’. Those are the ones that you
really need. All good job loss program, job loss insurance, those are the things
that really matter the most, and then after that then we can start looking at
rates. Because let’s say for example you go for a lender that had a great lower rate
but they don’t have any of these other benefits and god forbid you fall on some
hard times and the foreclosure on your home, that extra 0.1 lower than a
bank total of giving you this now doesn’t mean a lot because it hasn’t
really helped you when you need it the most. So look at terms, conditions and
what the product will be offering. The benefits of the product which is the
mortgage, those are to me are the most important to look at, and then yes a
hundred percent you should look at interest rates as well—and then most of
lenders or specialists can actually look at rates and tell you where these
rates are coming from and the reason why the rates are what they are. – So you mentioned that mortgage rates
were headed down. The question I was going to ask is, where do you think
mortgage rates are headed, and why do you think that? – So 2019 is the bond yield rates. They’re trading at a lot lower than they
were in 2018. So we’re going to— since five-year bond yields are—
the five-year bond kind of determines what the five your fix rate’s going to be. so just because of that it’s going to
translate into lower five year fix rates in 2019. That’s just how they work. So in
the next couple of months we are already seeing some decline coming and then
we’ll start seeing some more decline coming in the next couple of months. – So the question of the day
I have for you is, are the mortgage rates in 2019 going
to affect your decision to buy a home, yes or no? Let us know in the comment
section below. Thank you very much for watching, and remember if you enjoyed
and found this video helpful, make sure to share and like, and subscribe.
Thank you and we’ll catch you next time. – That’s another edition of Homebuyer’s School. Tune in next time for more expert tips and tricks, and visit homebuyersschool.ca to bring you one step closer to finding your dream home. As with everything, it would be great if you like and share our videos. Also please let us know if you have any home buying questions you want us to answer.

Paul Whisler

One Comment

  1. Are the mortgage rates in 2019 going to affect your decision to buy a home, yes or no?

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