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A Complete Guide to Navigating Interest Rates in Canada for 2024

Scott McGillivray of Scott’s Vacation House Rules.
HGTV Canada

There are many things to consider for Canadians looking to buy a home or an income property, from location to size to features, and importantly – how much will the property cost, and what kind of interest rate can you get on the mortgage?

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Canadians who understand current market conditions and interest rates can make more informed decisions. As Scott McGillivray says on Scott’s Vacation House Rules, “Do your research.”

If you’re interested in an income property, a new home, or finding the best solution for a mortgage renewal, here are questions you should ask before taking the plunge.

For more expert advice on how to purchase the right property and increase its value, don’t miss Scott’s Vacation House Rules on HGTV Canada. Stream Live or On-Demand with STACKTV. Try it free today!

What Is the Current Bank of Canada Interest Rate?

At the time of writing, the Bank of Canada interest rate is 5.00 per cent. It has remained at the same level since July 2023. This interest rate influences the prime rate set by lenders, which can change at any time. CIBC’s current prime rate, for example, is 7.20 per cent.

Related: How the Bank of Canada Interest will Affect Home Buyers in 2024

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How Do Interest Rates Affect My Mortgage?

There are all kinds of mortgage providers and products to shop, including those offered by CIBC. This is true whether you’re investing in a vacation or income property like Scott McGillivray, purchasing your first home, or renewing your existing mortgage. Your mortgage payments are determined by the rate you secure as well as your amortization period.

An amortization period is the number of years it will take to pay off your mortgage at the current rate. Many Canadians select a 25- or 30-year amortization term in order to minimize their payments. The longer the amortization period, the lower the payments since you’re paying off the property over more years.

Related: How Bank of Canada’s Higher Interest Rates Will Impact Your Mortgage Payments

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With current housing costs, a longer amortization typically makes sense. However, consider that you will be paying interest for longer, which can add up.

A mortgage term is the number of years you enter your mortgage agreement for. Five years has historically been the standard mortgage term, but given elevated interest rates in recent years, three-year fixed mortgages have become increasingly popular.

It’s important to remember that no matter what your amortization period is, you’ll need to renegotiate your mortgage at the end of your mortgage term. A lender can present you with available options and features such as prepayments to help lower your overall payments.

Should I Get a Fixed or Variable Rate Mortgage?

In Canada, you can choose between a variable or fixed-rate mortgage. A fixed-rate mortgage has a fixed interest rate and payment amounts throughout the term of your mortgage. A variable-rate mortgage has an interest rate that fluctuates based on the lender’s prime rate. While the product you choose is a matter of personal preference, it’s always helpful to consult with a mortgage professional who will look at your financial portfolio and history before offering advice.

In the past, Canada’s variable mortgage rates have generally been slightly lower than [five-year] fixed-rate mortgages, but this has not been the case in recent years. Additionally, if you plan on breaking your mortgage before the term is up, you may face a lower penalty with a variable-rate mortgage than a fixed-rate mortgage.

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When Would My Mortgage Interest Rate Be Higher or Lower Than Prime?

Prime rate is one component that financial institutions consider when determining which mortgage rates to offer to clients. Several other factors influence the mortgage rate you secure, including your credit score, the amount you’re borrowing, market competition and whether the loan is insured. (In Canada, any home purchase made with less than 20 per cent down payment requires mortgage insurance.)

The term length and whether you’re looking at a fixed or variable mortgage also matters. If you choose a variable rate mortgage, your rate will directly depend on the prime rate and fluctuate accordingly (more on that below).

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Even a small change in interest rate can make a big difference in your overall payments, which is why it’s important to know and understand the market before locking anything in.

How Can I Secure the Best Interest Rate?

No matter what kind of mortgage you select, there are some steps you can take to help you secure the best possible interest rate. Work on improving your credit score by paying your bills on time and not carrying debt on your credit cards. Build up a steady employment record and keep contracts for any side hustles or freelance work. Saving for a substantial down payment is also a good strategy because it lowers your overall mortgage (and thus the interest you will pay).

It’s also a good idea to start settling other debt, like school or car loans, to achieve a low debt-to-income ratio. By showing a solid history and minimal debt, you should be able to get a reasonable rate.

Having accessible funds won’t directly affect the interest rate you secure, but using it in conjunction with prepayment options can also lower your overall payments and is another option to consider when negotiating your mortgage.

Related: Real Estate Agents Across Canada Share Their 2024 Predictions

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How Do I Know What I Can Afford?

Most homebuyers want to know how much they can afford when choosing a mortgage, but they also need to factor in how much they’re willing to pay. Car and school loans, the cost of living and other financial considerations should all be a part of the conversation.

There’s no point in looking for a property beyond your price range and budget, so it’s usually a good idea to speak with a mortgage advisor to receive a prequalification estimate. You can also use a free online pre-qualification tool to understand what you can afford.

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What Are Interest Rate Predictions in Canada for the Next Year? 

No one can predict the future, but if you plan to own a home, an income property or a vacation home, it can be a good idea to explore your mortgage options sooner rather than later. That way, you can temporarily lock in a rate and protect yourself if interest rates rise. If interest rates go down, you can still secure the better rate before finalizing your deal.

If you already own a home and expect your rate to go up in the near future, consider your prepayment options. If you can increase your monthly mortgage payments now to mirror what they might be in the near future, you can get used to paying that amount while also putting extra money down towards your principal (the total amount of your mortgage without interest).

That way, when your mortgage is up for renewal, it won’t be as big of an adjustment!

For more information on mortgages, check out CIBC’s mortgage rates here. And don’t forget to catch more vacation home rental inspiration courtesy of Scott McGillivray on Scott’s Vacation House Rules.



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