Mortgage rates determine the amount of interest you will have to pay on the loan. Naturally, a lower rate is more favorable to a large mass. While you can bring down the rates by changing some of the factors that affect it, others are beyond your control. Still, you should try to alter those which are in your hand so that you can avail the lowest possible rates.

A description of some of the main factors that can influence mortgage rates in Canada is given below.

Controllable Factors

Credit Score

Mortgage rates are highly dependent on your credit score which gives a measure of how well you can handle debts. A low score means higher rates because there is a high chance that you might default on the loan. On the other hand, a high score means lower rates.

Size

Mortgage rates are directly related to the amount which you will have to borrow. A large size means higher rates.

Down Payment

A down payment is the amount which you have to pay upfront. Naturally, the more you pay, the less you will have to borrow. So greater the down payment, lower will be the interest rate.

Term

The mortgage term exhibits a positive relationship with the interest rates.

Uncontrollable Factors

Bond Yields

The bond yields, specified by the government of Canada, greatly affect fixed mortgage rates, and a direct relationship exists between the two. Hence, an increase in bond yields will also increase the rates. Fixed rates and bond yields change in pretty much the same pattern if the term is exact.

Bond Prices

Bond prices decrease with an increase in bond yields, and vice versa. Therefore, fixed mortgage rates also decrease with an increase in bonds, and rise if bond prices are lowered.

Stock Market

When the Canadian stock market thrives, the value of bonds is lowered which decreases its price. Consequently, bond yields increase and so do mortgage rates. However, when the economy becomes unstable and the stock market falls, the bond value increases which lowers mortgage rates.

The Overnight Rate

The overnight rate is also known as the key interest rate and the key policy rate. It is determined by the Bank of Canada, and only affects variable mortgage rates. The relationship between variable rates and overnight rates is direct.

Prime

Prime also affects variable rates, and is specified by the Bank of Canada. Variable rates are often stated as prime rate ± a certain amount. If prime increases, variable rates will increase, and if prime decreases, so will the rates.