In this video we look at what is a good interest rate when buying a home.
That's coming right up.
Welcome to Homebuyer's School brought
to you by Brookfield Residential.
Hi everyone, welcome to another Homebuyer's School
video, a channel where you get the latest strategy tactics and tips from home
buying experts, and remember if this is your first time on this channel and you
want to get the latest strategies from the experts, make sure to hit the
subscribe button below, hit the little notification bell so you don't miss
anything. So today I'm joined by Mujtaba Syed mobile mortgage specialist with TD
Canada Trust and the question we're gonna answer today is, what's a good
interest rate when buying a home?
Yeah it's a great question Karl, so interest
rates kind of vary, the best interest in my opinion is the lowest interest
rate so when when you are talking to your bank, talking to your mortgage
specialist, find out what's available. Now interest rates are technically not just
a lowest number possible which in turn determines-- it depends on rates terms
outstanding, how many years. So for example it also depends on what your
goals are and what you're expecting in the long term so if you're
expecting to sell your house within the next two years, maybe don't go into
a longer term. Stick with a two-year term or shorter, so don't look at any exiting
penalties or anything like that but in my opinion the best rate is always the
lowest rate that you can get.
So Mo, what is the effect of higher or-- and lower interest rates on when
you're trying to purchase house?
Exactly, so--
rates are basically just based on term, right. So for example if you want to
go for a different term it could impact your rates. We have banks at rates
starting from one year all the way up to ten year fixed. Sometimes we also have
available five year variables, three year variables, so the best thing to do
is really just have a conversation with your specialist or your lender and
explain to them what your goals are and they can advise you on what's best for
you. It's not always the best to go for a five-year fix or five year variable, you
could go for a two-year, you could go for a three-year, you could sometimes-- you
can go for a 10-year if it makes the most sense for you but those are
conversations to have with your specialists or your lender at that time.
So in this environment though in the environment we have with the
current-- the recent interest rate hikes, is it better to have a shorter term or a
longer term?
In this scenario right now where five year fixed rates have gone up,
economy is very unstable, a lot of things are going on I have been really
recommending all my clients look into the variable rates right now. The
five-year variable rates right now have major-- major discounts. A lot of people
worry about the five-year variable rate, asking what happens if it goes up
in the future. Yes there is a potential it can go up in
the future but the discount is so big that it gives you time to react.
Every time the Bank of Canada reviews rates it gives us time right, and then a
five-year variable has provisions built into the rate where you can walk in at
any time without penalties for a greater term than what's outstanding, for
example if you have a five-year variable you could lock in for a three or four or five
year fixed, whatever is available at that time, without the penalties. So it's a really
good way for a five-year variable today to kind of average your interest rates
over the five-year term so try to get some lower rates. It might go up, it might
come down but overall the discount's so big right now that you're gonna probably
do better than a five year fixed today.
And remember if you want to know more
about comparing mortgage rates between the banks, check out our video
above for more information. So Mo, how much does a mortgage interest rate really
matter in terms of when you're buying your home?
Yeah so mortgage rates are probably
one of the most important things, it determines what your payments are, what
your repay-ability is, how much you end up paying back to the bank,
all of that stuff is really just based on your interest rate all it has to do--
it has a big factor in playing in your decisions with who you want to-- who you
want to go through as a lender or how much you want to borrow. So interest
rates like I said, the lowest the better.
Is that usually the first thing you take a look at when
you're thinking about applying for a mortgage, the interest rates?
The first thing I kind of do is look at my budget, I look at to see how
much can I afford because interest rates right now, most banks are going to be
within a tenth of each other, it's not going to be-- they're not going to be
totally off so I would-- first to see what my pre-approval is, what my budget is and
then fix a monthly budget for myself, and once I know what my monthly budget is
that I'm comfortable with, and see what interest rate gets me closest to
that payment so I know I can afford it, and then you want to see what terms come
with that interest rate to see if it's beneficial for yourself.
So if it's-- if you have more-- less prepayment privileges or you feel like
you're stuck in for a long time and the existing policies are a little bit more
stricter, then you might want to look at other things but it all just depends on
how-- what your future goals are, how you feel after speaking to your lender, your
specialist after listening to your goals and concerns should be able to direct
you into the right direction to see what rate is best for you, what term is best
for you, and then kind of go from there.
Does it make sense to also think about
your ability to pay that mortgage and take into that interest rate into
account right, so if you are going five-year variable, you want to make sure
that over that course of the five years you can actually pay off, even if that
interest rate increases.
Absolutely, yeah. If you want to take a look at that but
with a five-year variable sometimes you can argue the fact that there's no
stopping it right, they could come to a-- no maximum like if the Bank of Canada
kept on raising rates. We do have to be realistic, it could look at
historical trends and see where prime was and to where it is today but even
then, five year variables have provisions built into it so you don't get-- you don't
get sky-high rates or you feel like you're stuck in and you can't get out.
Five-year variable rates do have provision of locking and for like I said,
like a three or four-year, five-year term, every bank, every lender will have
different provisions but variables- every lender will have a provision to kind of
safeguard your interest rate so it doesn't go higher than what you are
willing to pay or what you can pay.
Perfect do you have anything else to add?
No I think the best thing to do is just have like an honest discussion with your
lender and specialist and just tell them what your goals are and you explain
to them what your monthly budget is and how much you are comfortable paying
and then they can sit down, work out a plan with you and for you to see these
are the best rates possible, and sometimes five-year variables are not
always the best rate, you want to look at what makes more sense for you. I've had
some clients that got into two years for their
life of their mortgage and I've kept on renewing because they were most
comfortable with their two-year so it's not always the best just to look at what
the five-year is, always check what all the rates are and then kind of go from
there. Sometimes banks have big great discounts
available on different terms like a three year or four year, maybe even a
five year, six year, and see what's best for you and then look, like once again
have that honest discussion with your specialist and lender and they can guide
you in making the right choice.
Perfect, well thank you very much Mo. Thank you very much
for joining us and remember we have a lot of mortgage and mortgage rate
videos in our playlist below in the description, so have a look at that 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.