When shopping for a mortgage, it’s easy to get drawn in by the lowest advertised rate. After all, who doesn’t want to save on interest? 

But there’s more to a mortgage than just the rate, and focusing solely on this number can sometimes mean paying more over the life of the loan. 

Here’s why the lowest rate may not always be the best choice—and why working with a mortgage professional can help you find the right fit for your unique financial situation.

1. Understanding mortgage terms

A mortgage’s interest rate is only one aspect of the overall agreement. Different mortgages come with various terms, repayment structures, and penalties. Low rates may sometimes be “teaser” rates that adjust after a set period, or they may require a high-ratio mortgage insurance premium, which adds extra cost. Fixed and variable rates, for example, offer different benefits depending on your financial goals, and a very low variable rate may not suit someone looking for payment stability.

Some mortgages come with steep penalties if you decide to break your term early. For instance, a lender with a lower rate may also impose hefty charges if you need to refinance or sell your property mid-term, which can be a big factor for borrowers who anticipate lifestyle changes within the next few years.

2. Flexibility and prepayment options

Some low-rate mortgages have limited flexibility, which may not be suitable for everyone. Prepayment options, for example, allow you to make extra payments or increase your monthly payments without penalties, helping you pay down your mortgage faster. Mortgages with rigid terms might limit your ability to pay down your principal early, locking you into the agreement.

Mortgages with slightly higher rates sometimes come with the added benefit of generous prepayment terms, meaning that even if you’re paying a bit more in interest, you can save on the total cost by reducing your principal more quickly. Being able to pay off your mortgage early or make lump-sum payments can be a great advantage if your financial situation improves or you receive a financial windfall down the line.

3. Portability options for future plans

Another factor to consider is whether a mortgage is portable. This feature allows you to transfer your mortgage to a new property without paying a penalty. If you’re considering a move in the next few years, a portable mortgage can provide flexibility. Often, the lowest-rate mortgages lack this feature, which could mean penalties or having to requalify when you move.

4. The value of guidance

The best mortgage aligns with your financial goals and lifestyle. While a low rate may sound appealing, a mortgage professional can help you see the full picture and tailor solutions that truly meet your needs –– saving you time, stress, and money.

If you’re ready to explore a mortgage solution that provides the right balance of rate and features for your needs, I’m here to guide you through your options and help you make a confident, informed choice for the long run.

Source - Julie Isaac | Mortgage Agent

Canadian real estate markets are witnessing a cautious yet optimistic resurgence. In September, the Canadian Real Estate Association (CREA) reported a slight uptick in home sales nationwide following the third consecutive interest rate cut by the Bank of Canada. This development suggests potential relief for buyers and sellers who have been navigating a turbulent market landscape.

“The beginning of September saw a burst of new supply for buyers to choose from before things generally quiet down for the winter,” said James Mabey, CREA Chair. “While some buyers may choose to take advantage, others may be inclined to wait as the bulk of future rate cuts from the Bank of Canada are now expected to show up in a matter of months as opposed to years. Whether you’re looking to buy or sell a property this fall or getting ready for what promises to be a big spring market next year, the first step is always to contact a REALTOR® in your area.”

What the numbers say

According to the report, national home sales rose 0.9% last month, reaching their highest level since July 2023. This slight boost in sales was led by the Greater Toronto Area and Hamilton-Burlington, Montreal and Quebec City, as well as Greater Vancouver and Victoria. The improvement comes after a period of volatility where buyers and sellers alike were cautious, waiting for signs of stability.

“Sales gains are now three for three in the months following interest rate cuts, which is a trend even though the increases weren’t headline-grabbing,” said Shaun Cathcart, CREA’s Senior Economist. “That said, with the pace of rate cuts now expected to be much faster than previously thought, it’s possible some buyers may choose to hold off on a purchase for now. This could further boost the rebound expected in 2025 at the expense of the last few months of this year.”

Inventory and new listings

In September, new property listings saw a 4.9% increase from the previous month, with a notable influx of listings during the initial weeks. This upward trend was widespread, encompassing many of the nation’s largest markets.

By the end of September 2024, there were 185,427 properties listed for sale across all Canadian MLS® Systems, marking a 16.8% increase from the same period last year, although this figure still falls short of the historical September average of approximately 200,000 listings.

Despite new listings outpacing sales in September, the national sales-to-new listings ratio softened to 51.3%, a decrease from 52.8% in August. A reversal of this trend may occur if the increase in listings translates into heightened sales in October. Historically, a national sales-to-new listings ratio of 55%, and one ranging from 45% to 65%, typically indicates a balanced market.

As of September 2024, the national housing inventory stood at 4.1 months, slightly down from 4.2 months in August. The long-term average is around 5.1 months, with periods under 3.6 months indicating a seller’s market and those over 6.5 months denoting a buyer’s market.

Prices remain stable

The National Composite MLS® Home Price Index (HPI) ticked up a marginal 0.1% from August to September. Despite these minor fluctuations, the broader view shows that national home prices have largely remained stable since the start of the year.

Fourth consecutive cut brings key lending rate to 3.75% for the first time in two years

For the first time in two years, the Bank of Canada’s overnight lending rate has hit under 4%.

In its scheduled October 2024 announcement, the central bank lowered the target for the overnight lending rate by 50 basis points to reach 3.75%. This marks the fourth consecutive cut to rates in 2024, and the largest decrease since the onset of the pandemic in March 2020. 

In September, Canada’s Consumer Price Index recorded the smallest yearly increase since February 2021, rising 1.6% year over year, hitting under the Bank’s 2% inflation target for the second consecutive month. This was a key factor in the Bank’s decision to lower the lending rate by a larger amount in October. 

“In the past few months, inflation has come down significantly from 2.7% in June to 1.6% in September. Recent indicators suggest it will be around 2% in October. Price pressures are no longer broad-based, and both our measures of core inflation are now under 2.5%. Our surveys also find that business and consumer expectations of inflation have shifted down and are nearing normal. All this suggests we are back to low inflation. This is good news for Canadians,” said Tiff Macklem, Governor of the Bank of Canada, in a press conference with reporters following the announcement. 

“If the economy evolves broadly in line with this forecast, we anticipate cutting our policy rate further to support demand and keep inflation on target. The timing and pace of further interest rate cuts will depend on incoming information and our assessment of its implications for the inflation outlook. We will take our monetary policy decisions one at a time,” he added.

Lower rates could trigger early spring market 

Another cut to the overnight lending rate may be enough to stimulate activity in stagnant housing markets across Canada come spring, especially among buyers who have been sidelined by the higher cost of borrowing over the past two years. 

In its Q3 2024 Home Price Update & Market Forecast, Royal LePage predicted that the aggregate price of a home in Canada will increase 5.5% in the fourth quarter of 2024, compared to the same quarter last year. As lower interest rates boost consumer confidence and borrowing power, home prices are expected to increase as more buyers re-enter the market. Rising demand in the late months of 2024 and into the new year will likely put Canada’s housing market on track for an early spring market. 

“Activity in Canada’s housing market has been sluggish in many regions due to higher borrowing costs, but today’s more aggressive cut to lending rates could cause the tide to turn quickly. For those with variable rate mortgages – who will benefit from the rate drop immediately – or those with fast-approaching loan renewals, today’s announcement is welcome news indeed,” said Phil Soper, president and CEO of Royal LePage. “With every cut to the overnight lending rate, more homebuyers are expected to come off of the sidelines. In turn, rising demand will cause home prices to increase more rapidly, eliminating the advantages of lower borrowing costs. We expect that an early spring market is on the cards – a pull-ahead trend we’ve seen in previous market turnarounds.”

Though the Bank of Canada started to reduce rates in June, many homebuyers have been waiting for a more substantial cut to rates before choosing to reboot their purchase plans. According to a Royal LePage survey, conducted by Leger, 51% of Canadians who put their home buying plans on hold the last two years said they would return to the market when the Bank of Canada reduced its key lending rate. Eighteen percent said they would wait for a cut of 50 to 100 basis points, and 23% said they’d need to see a cut of more than 100 basis points before considering resuming their search.

The Bank of Canada will make its next interest rate announcement on Wednesday, December 11th, the last announcement for 2024.

Read the full October 23rd report here.