rates have a direct effect on mortgages. The higher the interest
rate, the more expensive the monthly mortgage payment. Because
of the debt/income ratio that is one of the determining factors
in granting a mortgage loan, higher interest rates lower the
amount the lender can grant (or the amortization period must
be increased, upping the amount of interest versus principal
the mortgage holder will pay over the lifetime of the mortgage).
Interest rates also influence actual housing prices a high
rate depresses the market because fewer people can afford
the higher mortgage payments, on the other hand, low interest
rate causes an influx of first time real estate buyers who
bump up real estate prices.
For example, a current Ottawa mortgage of $100,000 with
a 25 year amortization at 5% will have a monthly payment
of $581 and cost $74,459 in interest (assuming the interest
rate remains the same over 25 years). In contrast, 1980’s
Otatwa mortgages of $100,000 with the same 25 year amortization
at 20% had a monthly payment of $1,614.95 and would have
cost $381,734 in interest if rates had stayed that high.
The interest rates that a lender charges depend on several
things; the prime rate set by the Bank of Canada, direct
competition from other lenders, and the credit rating of
the person applying for the mortgage. The better the credit
rating, the lower the interest rate the lender will offer,
as the risk factor is perceived as being less, giving the
applicant more mortgage options. Because mortgage brokers
have access to every lender, they are usually able to get
the best interest rate for a mortgage seeker.
If you have additional questions or would like to see if
you can prequalify for a mortgage
in Ottawa, please call Chad Robinson at (613) 288-5836
or use our Ottawa
Mortgages Directory to find a mortgage
broker or mortgage
bank specialist to help you.