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Canada Mortgage: Interest Rates on First & Second Mortgages

If you´re thinking about obtaining a Canada Mortgage, following is some information on interest rates and trends that may affect your decision.

Canada Mortgage: Interest Rate Overview

Changes in interest rates and directly impact how much monthly mortgage payments are. Following is some general information on the interest rate you can expect to receive on first and second mortgages in Canada.

Canada Mortgage: Rates on First Mortgages

To get the best possible rate on a first mortgage, most mortgage experts advise that you put down at least 5%. This classifies your mortgage as a hi-ratio mortgage, which means that the lender is protected from default by either the Canada Mortgage Housing Corporation (CMHC), or a private, government-approved insurer.

So, assuming you can come to the table with at least a 5% payment, what kind of interest rate can you expect?

Canada Mortgage: Determining Your First Mortgage Interest Rate

Canada Mortgage: Prime Rate. The best way to calculate this is to look up the prime rate. This changes frequently, so you want to check it as close to the time you are considering applying for a mortgage as possible.

On most mortgage broker sites, not only do they list the prime rate, they list it in time increments, e.g., what it would be if you took out a 20-year mortgage as opposed to a 30-year mortgage.

Canada Mortgage: Rates on Second Mortgages

A second Canada Mortgage is commonly referred to as a home equity loan. A second mortgage, if used strategically, is a sound financial tool to fall back on. For example, if you want to go back to school to finish a degree to further your career, a second mortgage can pay for it.

As a second Canada Mortgage is based on the equity in your home, it doesn´t have to interfere with a first mortgage. Second mortgages are usually paid back before first mortgages, as they are taken out for a shorter period of time.

As second mortgages pose a higher risk for lenders, expect to pay a higher interest rate than the one you got on your first mortgage.

Second mortgage interest rates depend on a number of factors, e.g.: amount of equity in the home, your credit rating, length of loan, etc.

Generally, second mortgage interest rates are between 10 and 20 percent, with around 12 percent being the norm.

One more thing you should know about a second Canada Mortgage: most lenders will only lend on up to 80% of the equity in the home. While some will lend up to 100 percent, it is rare. Example: If you have $100,000 in equity, a lender will loan you up to $80,000, if you qualify.

This is to guard against the fluctuations in the real estate market, which is an ever-changing entity.

Canada Mortgage Interest Rate Note: Remember, these are just basic rules of thumb. Consulting a qualified mortgage professional is the best way to get specific advice about your financial situation.