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What are Interest Rates and Why Do They Fluctuate?

Your credit score and income largely determine what type of interest rates you will receive on your Milton mortgage, as well as what type of mortgage you can qualify for. But how are these initial interest rates determined? To offer some clarity, the Loewen Group Mortgages Team has explained what mortgage interest rates are and why they fluctuate.

What Are Mortgage Interest Rates?

Your mortgage interest rate is a percentage you owe every month towards the total amount of money you borrow from your Milton mortgage broker. These rates can change depending on how well the economy is doing.

Factors that can influence the economy is the discovery of natural resources such as oil. Other factors include job availability and the current unemployment rate, as well as political involvement. Depending on the country’s involvement with political issues, the economy could rise or fall.

Types of Mortgage Rates

In Canada, there are two main types of mortgage rates that fluctuate depending on the factors listed above. The first is known as a fixed rate mortgage. This is a mortgage where you are given a set rate that will not change throughout the duration of your loan.

The price of a fixed rate mortgage is determined by the Government of Canada bond yields. A bond is considered a low risk, safe investment, so if the economy is doing really well bond prices are going to decrease since people will be more likely to invest in stocks than in bonds. If the price of bonds drops, then the bond yield will increase. If the bond yield is increasing, then so will the fixed rates. The opposite will occur if the economy is doing poorly.

The second type of mortgage rate is a variable rate mortgage. This is where your interest rates can change throughout the duration of your loan. These rates are determined by the Bank of Canada overnight lending rate, which directly affects the lender’s prime rate. This means that if the prime rate rises then so will the variable rate.

Contact Us

For more details on mortgage rates in Milton, and reasons behind why they fluctuate, please contact the Loewen Group Mortgages Team at (289) 270-1586.

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