Mortgage Rates

A mortgage interest rate is the interest rate accumulated on a mortgage loan. Mortgage loans are secured by real estate property by means of a mortgage note that testifies to the existence of the loan. There are many ways to pay back a mortgage loan. Most commonly, the repayment is based on regular payments of the principal and interest over a certain term or period of time. This is known as amortization in Canada and the United States. Interest can be compounded annually, twice a year, monthly, daily, or based on a 360-day year. You may be penalized if you try to pay in advance. Upon establishing mortgage rates, the mortgage term is always taken into consideration. Mortgage terms range from ten to fifty years depending on the mortgage size. The amount of principal included in every repayment differs throughout the term.

Another means of repayment is interest only and in this case, the capital is not paid back. Often, this plan is connected to a regular investment plan. With such a setup, regular payments are made towards a separate investment plan with the purpose of accumulating a lump sum to pay back the mortgage when the term expires. This is known as an investment-backed mortgage. Typically, such mortgages offer certain tax benefits over repayment.

For mortgage loan recipients in their retirement years, neither principal nor interest is required. The interest and principal are compounded together, and the debt increases on a yearly basis. This setup is alternatively referred to as equity release, lifetime or reverse mortgages. The loan is repaid when the recipient dies, which is why there is an age limit.

Finally, you can pay interest and a part of the principal. This is known as partial amortization.

Recently, Bill Gross, a world-famous fixed income investor, foresaw the end of the bull bond market after glorious thirty years. It will be very hard to judge the long-term impact of this development on mortgage rates in Canada, especially considering the actions of its southern neighbor, which is printing dollars by the ton to jump-start its economy. As bonds sell off in the United States, yields in Canada increase over a certain period, which in turn hikes up the mortgage rates.

The short-term impact may be somewhat easier to predict, considering the key technical factors involved. The biggest mortgage lender in the country, the Royal Bank of Canada, reduced its benchmark rate to 5.29 percent and dropped its other fixed rates by 10 basic points as well. RBC is currently touting a special offer rate of 3.89 percent, but that is simply taken as a reference. The market rate is at least thirty points below that. TD Canada Trust, for example, features different interest rate plans, from 1 year fixed rate mortgage with rate set at 2.5 percent to 10 year fixed rate mortgage at 5.09 percent. All mortgages offered by the company are available in the form of high-ratio and conventional financing.