The Ins and Outs of Mortgage Rates
It seems like not a week goes by that a major news story doesn’t rock the Canadian real estate market regarding mortgage rates. While it’s true that mortgage rates are an important factor when it comes to home buying, it’s even more essential for Canadians to understand exactly how mortgage rates work, and how they can affect home loans.
What are mortgage rates?
A mortgage rate is a term used to describe the interest on a home loan. For most individuals, obtaining a mortgage is a necessary part of buying a home. Mortgage rates are figured on the principal balance of a home loan, meaning how much money is still owed before the loan has been fully repaid. Since a higher balance means more interest, mortgage rates are typically more expensive at the beginning of a loan. As the balance is paid off, less interest is able to build up. This is also why homebuyers spend so much time searching for low rates, as lower interest means less money owed.
Additionally, since mortgage rates mean that more interest is able to build up, higher rates make it more difficult to pay off a loan faster. Since more money is being put toward paying off interest, it’s harder to lower the actual balance of a loan.