compare canada mortgage

the turbulent recent weeks in the global economy has been chaos, with interest as the Bank of Canada was adopted by several global central banks to drop the prime interest rates to try to slow the economic downturn. The typical reaction of the big banks, it is the Bank of Canada the lead and decrease their prime rates - by a similar amount, although this was not the case last week. Royal Bank, Scotiabank and TD, together with the other only dropped their prime rate by 0.25 % versus 0.50% the fall by the federal government. This has resulted in the Canadian mortgage rates actually rise again against the normal market behavior. The result is a very interesting question - what really affects Canadian mortgage rates?

There are numerous factors that influence the economy, including Canada unemployment, gas prices, inflation, exports and imports, the government budget or a surplus, and the list goes on, and it can be different to think about all these things and as our daily lives and the mortgage, we are prepared to pay. Many people believe that the Bank of Canada's monthly interest rate decisions directly affects all mortgage interest rates, but that's not the case. Variable (ARM or adjustable mortgage rates) and fixed mortgage rates in Canada are influenced by various factors.

Fixed mortgage rates

Canadian mortgage rates are fixed by the price of government bonds and the yield. Bonds are generally safer than investments than equities, and if there are economic turmoil, investors usually will dump shares in favor of bonds, especially government bonds, and when the booming stock market, investors likely would mean a higher return on investment in equities.

In other words, there is a lower demand for bonds, so that they lose their value and increase their yield. On the other hand, if the Canadian economy is less stable and stocks do not look as tempting to the increased demand for bonds and the yields decrease.

If the Canadian government's longer-term bond prices, such as the 5-year increase, this results in a decreased yield (return), usually five years, the cost of mortgage borrowing, which can then these savings are passed on customers in the form of lower 5 years fixed mortgage rates.

However, during these very unusual times, because of the lack of liquidity in the markets, banks around the world are reluctant to lend to each other and are hoarding cash, resulting in higher credit costs and lender, these increases on to customers in form of higher fixed mortgage rates.

Variable mortgage rates

The Bank of Canada plays a major role in determining variable mortgage rates, as it aims to target about which they describe as:

"" The average interest rate that the bank wants to see in the market for one-day-(or "over") loans between financial institutions. "

That is what the big banks, their prime rates and the Bank of Canada has no say in the definition of the lenders prime rates, they are independent from each institution and are based on the cost for the short-term funds.

This is important because variable mortgage rates are known as Prime - 0.60% or similar, which means that the interest rate you pay is directly linked to the prime rate, and vary, if this changes. So, if the Bank of Canada drops rates by 0.50% or 50 basis points, as they did last week, the lender usually reduce their prime rate, and because their cost of borrowing drops, which means that your payments on a variable mortgage will decrease, a great option if interest rates fall.

The problem with this scenario in this dreaded "credit crunch" is that banks no longer lending to each other in the short term as they fear they may not get their money back because of the instability in the system. As a result, interbank interest rates have risen and these higher costs are passed on to customers in the form of higher interest rates.

Are fixed or variable interest rates, the better alternative?

This is a very frequently asked question and really depends on each person's situation and whether they are consistent with the changing interest rate mortgage payments, both financially and mentally, because the last thing you want is to lose sleep, because the interest rates increase , or if you 'd feel more comfortable knowing the permanent fixed rate of interest you will pay more than a few years ago.

There have been many studies and debates on, the better for the borrower and the analysis shows that historically Canadian homeowners would be better by using variable interest rates. There was a recent report by Dr. Milevsky, Associate Professor of Finance, Schulich School of Business, York University, and he said that based on data from 1950 to 2007, the average Canadian could expect to 90.1 Interest % of the time of selection of a variable instead of a fixed mortgage. The average savings was $ 20,630 over 15 years per $ 100,000 of borrowed, and he says, "over a longer period, homeowners really surcharge for fixed mortgages." "

This may be something to consider in the coming months the Bank of Canada is the projected decline in mortgage rates, but remember, this is very unusual times and the best thing to possibly expect the unexpected.

Kelvin Mangaroo is the founder of the RateSupermarket.ca, Canada is the best place to compare mortgage rates.