How Are Rates Determined in Canada?


Variable Rates

There are two components that make up a variable mortgage rate:

Prime rate, determined by the Bank of Canada, and the discount (or premium) to the Prime rate - determined by the banks.

The Bank of Canada meet every 6 weeks to determine what is called the overnight lending rate, which in turn affects the Prime rate. If Prime changes, so does your variable rate.

The other component is discount (or premium) to Prime rate. If your loan is registered as a mortgage, your discount will remain the same throughout the period of your term.


Fixed Rates

Fixed rates are determined mainly by bond yields.

For example, the 5 year bond yield is closely tied up to the 5-year fixed rate. The range (or spread) for investor desired profitability, at the present moment, is in the region of 1.90 and 2.10. This is also known as the "comfort zone".

If the increase in bond yield continues upward, the spread shrinks, which could prompt interest rates to rise.



### Posted on: March 01, 2013 by Tino Brelak.

    MORTGAGE APPLICATION

    Submit Online Application


    LET'S CONNECT
   Call: 416-305-4435

   


    OTHER ARTICLES
2015: Busiest year ever in one market
[Posted on December 09, 2015]

Fall-a-la-la-la-la-la-la-la...
[Posted on October 24, 2014]

How Are Rates Determined in Canada?
[Posted on March 01, 2013]

The Importance of Life Insurance
[Posted on February 18, 2012]

What is happening with the interest rates lately?
[Posted on January 15, 2012]

Preparing Your Children for Their First Mortgage
[Posted on January 15, 2013]

Being Mortgage-Free Sooner rather than Later
[Posted on October 30, 2012]

How About Getting the Lowest Mortgage Renewal Rate?
[Posted on October 15, 2012]

Mortgage Industry Changes
[Posted on September 30, 2012]

To Refinance Or Not To Refinance? - That Is The Question
[Posted on February 08, 2011]

How to Buy 15 Investment Properties with Minimal Income
[Posted on February 15, 2011]

Mortgage Financing Changes
[Posted on February 01, 2011]

DESIGN BY MULTIIDEA + DEVELOPMENT BY ABACUS