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Mortgage rates explained: How do they work and how to find the best rate!

“Always pick your yard based on your Summer lifetstyle.”

~ KARL

May 30, 2019 - Karl Yeh

"So the mortgage rate means, is technically it's an annual percentage, what we call an APR, which is when you borrow money to buy a home, for example you're borrowing it from the bank, and then you're returning it, and there's a cost for that service."

What are mortgage rates and how do they impact your ability to buy a home? How would you find the best rate? In this episode, we discuss everything about mortgage rates including; what they are, how are they determine/calculated and how to shop for and compare the best rate.  Finally, we explore where mortgage rates are headed in 2019 and beyond.   

 

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Transcription:

Hi everyone, I'm Karl, and welcome to another Homebuyer's School video, a channel where you get the latest strategies, tactics, and tips from home buying experts. And remember, if this is your first time on this channel, and you want to get the latest strategies from the experts, hit the subscription button below, hit the little notification bell so [00:00:30] you don't miss anything.

So today I'm joined by Mujtaba Syed, Mortgage Specialist with the Bank of Montreal, and the question we're going to answer today is mortgage rates in 2019. So I guess [Mo 00:00:41], first of all,

What do mortgage rates mean? What are mortgage rates?

Mujtaba Syed:             

So the mortgage rate means, is technically it's an annual percentage, what we call an APR, which is when you borrow money to buy a home, for example you're borrowing it from the bank, and then you're returning it, and there's a cost for that service.

So that's why I technically look at it as [00:01:00] an interest rate is that this is the cost for the service provided, right?

Which is the interest rate that they've lent you their money or money in general. And then you just pay that back.

And it is based on an annual rate, and it's paid.

It could be paid monthly, semi-monthly, bi-weekly, weekly, depending on how you want to set it up.

Karl Yeh:                       So

Where do I go and find the most current mortgage rate?

Mujtaba Syed:             

You can go onto your bank's website, you can go onto your lender's website, you could do a quick Google search.

Finding rates are not difficult. [00:01:30]

The only thing I would really stress is go to a reputable source to find interest rates.

Find it from a reputable lender.

Sometimes you see a really low rate, and then you get enticed by it, and you realize that it's an insurance company or it's something that's a financial company that is not considered to be a bank.

You want to be able to see where those rates are coming from, what kind of terms and conditions are attached to that rate.

You might get a low rate today, but after the five year term, when your term comes up, you might not be able to renew at the same rate, or they [00:02:00] might give you a higher rate. You might not be able to transfer.            

There could be a lot of stipulations.

Sometimes when you do decide which lender to go with, it depends on more than just rate alone in terms of what the terms and conditions in the mortgage and the benefits added.

So yes, definitely do your research, but do your research properly on what rates to get and where they're available.

How to finance your home

Karl Yeh:                       So Mo,

How are mortgage rates actually determined?

Mujtaba Syed:             

So there's two separate types of rates.

Variable mortgage rates

So we have, let's say, the variable rates. [00:02:30]

The variable rates kind of base on the overnight rate which is the Bank of Canada. So that's currently based on prime rates.

So that's could fluctuate, be based on with Bank of Canada wants to their benchmark rate at or their overnight rate at.

So, and then the bank's will have their prime rate on top of the Bank of Canada's overnight rates.

Fixed mortgage rates

Fixed rates on the other hand are actually based on the bond market. So if it's up like a five year fixed is based on a five bond.

Whatever the five year bond yield is, there's going to very something, something similar to that is the five year fixed [00:03:00] rate.

So that's a really, really good question because a lot people don't want to seem to understand that. They're two different types of rates.

How they're calculated is not necessarily that since one is low, one should be higher. It doesn't really technically work that way.

Sometimes you might have seen it be like that, but that's not necessarily the case.

As of right now, we are going into a very low rate environment, so keep your eyes out, interest rates should be dropping in the next few months as we do know the five year bond yield rates are actually [00:03:30] very low.

Last time I checked they were trading at 1.45%, meaning that that's technically the same amount of radials that were trading around 2017 when we had low rates. I'm not saying rates are going to come down to those levels again, but we are in the market for lower rates.

So right now is a good time to get out, get a pre-approval done, come to a Brookfield's show home.

Speak to me or a sales manager, because rates are actually going to be in the decline.

Karl Yeh:                       And so [00:04:00] last question here is

How do you actually shop for mortgage rates?

Mujtaba Syed:             

The best thing to do for shopping for mortgage rates first and foremost is, one, find out what is most important to you, right?

So terms and conditions to me are the most important thing in a mortgage.

So talking about skipping a payment, God forbid if you are sick, you fall ill, you've missed work for a while. Skipping payments is really a big one.

So find out if your mortgage lender can offer you those things first and foremost, before you start looking to the rate option. Some [00:04:30] banks will have a relief program.

They might have take a payment and vacation program. Those are the ones that you really need.

Or a job loss program, job loss insurance, those are the things that really matter the most.

And then after that, then we could start looking at rates. Because let's say for example you go for a lender that has a very low rate, but they don't have any of these other benefits.

And God forbid you fall on some hard times and they foreclosed on your home, that extra point one lower than a bank that would have given you this, [00:05:00] now doesn't mean a lot because it hasn't really helped you when you need it the most.

So look at terms, conditions, and what the product really offers, right? The benefits of the product which is the mortgage.

Those to me, are the most important to look at. And then yes, 100% you should look at interest rates as well.

And then most of the lenders, most specialists can actually look at rates and tell you where these rates are coming from and the reason why rates are what they are so...

Karl Yeh:                      

So you mentioned that mortgage rates were headed down. [00:05:30] And the question I was going to ask is

Where do you think mortgage rates are headed?

And why do you think that?

Mujtaba Syed:             

So 2019 is... The bond yield rates, they're trading at a lot lower than they were in 2018. So we're going to in...

Since five year bond yields are, and a five year bond is kind of determines what the five year fixed rate's going to be.

So just because of that, it's going to translate into lower five year fixed rates in 2019.

That's just how they work.

So in the next couple of months we are already seeing some [00:06:00] decline coming, and then we'll start seeing some more decline coming in the next couple of months.

Question of the day

Karl Yeh:   So the question of the day I have for you is

Are the mortgage rates in 2019 going to affect your decision to buy a home, yes or no?

Let us know in the comments section below.

Thank you very much for watching, and remember if you enjoyed and found this video helpful, make sure to share and like and subscribe.

Thank you and we'll catch you next time. 

 

Your turn:

Let us know if you have additional mortgage or financing related questions that we can answer by submitting them in the comments section below. 

Homebuyer's School publishes new content weekly so subscribe or check back regularly for the latest information, strategies and tips from home buying experts.  

About Mujtaba Syed:

Mujtaba is an experienced mobile mortgage specialist with a demonstrated history of working in the banking industry. Skilled in Negotiation, Commercial Lending, Banking, Sales, and Credit Analysis. Strong product management professional.

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