Comparing Mortgage Rates in 2021

Why You Should Compare Mortgage Rates

Purchasing a home is a lifelong investment. To find an affordable mortgage with ideal terms and conditions, you want to be informed about the many options that are available to you. By comparing mortgages and shopping around, you can find a loan with the best features and an excellent mortgage rate, which in turn, could help you save thousands of dollars in interest over your amortization period.

Following a brief introductory look at the types of mortgages available and what factors might influence your mortgage rate, we will be comparing current mortgage rates at banks, monoline mortgage lenders, credit unions, trust companies, and private lenders to help you find the lowest mortgage rate. While many borrowers just go immediately to their bank to secure a loan, you will see the many benefits of going to monoline lenders, credit unions, trust companies, and even some private lenders who are offering more competitive rates to a wider range of borrowers.

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Mortgages 101

Types of Mortgages

Before diving into the current mortgage rates at banks, monlines, credit unions, trust companies and private lenders, it is important to define each type of mortgage and how they differ from one another. We will be comparing 2 categories of mortgages: fixed versus variable mortgages and open versus closed mortgages.

Fixed Mortgage Rates vs. Variable Mortgage Rates

A fixed-rate mortgage is a loan with an interest rate that does not change over the mortgage term. Once you secure a fixed rate, the rate is unaffected by market changes and you can continue making the same payment each month for the rest of the amortization period.

Variable rate mortgages are not as straightforward. The interest rate changes monthly or yearly because of market fluctuations. To determine your variable interest rate, your lender will choose a benchmark index to follow, such as the lender’s prime rate, and then add a fixed percentage on top called the adjustable rate margin . For example, the current prime rate at the Royal Bank of Canada is 2.45%. Your variable mortgage rate would be the sum of Royal Bank’s prime rate and a predetermined adjustable rate margin.

You can either start your loan with a variable rate and lock the rate in later or keep a variable rate for the entire term.

Fixed-rate mortgages offer predictability while variable rate mortgages offer flexibility. With a fixed-rate, a borrower knows how much they will be paying each month in interest. The downside is if you locked in a mortgage when interest rates were high, you will be stuck with it unless your term ends or you refinance.

On the other hand, you can take advantage of low or falling rates with a variable rate because your interest payments change with market conditions. There are 2 sides to that coin: if rates start to climb and you do not have the option to make your rate fixed, you can be paying more interest than you bargained for.

Open Mortgage Rates vs. Closed Mortgage Rates

An open-mortgage allows you to pay off your mortgage faster. You have the option of adding more money to your monthly payments or contributing a lump-sum to the loan without having to deal with prepayment penalties.

Most borrowers that consider an open mortgage often expect an influx of cash in the near future from selling their home, receiving an inheritance, or expecting a promotion or new source of income. Interest rates are higher for open mortgages than closed mortgages.

To add to your monthly payments for a closed mortgage, you will have to refinance, otherwise you will be facing big penalties. Closed mortgages have substantially lower interest fees. Although you will not have the same level of versatility, you will reap huge savings on interest payments.

What Affects Your Mortgage Rate

Interest rates are not the same for everyone. There are a number of important factors that can impact your current mortgage rate, listed below:

1. How much you are putting down
   Your lender will require you to buy mortgage default insurance if you are putting down less than 20% of your home’s purchase price. The total cost of your mortgage loan will be greater, but the mortgage rate you are paying will be lower since the insurance mitigates some risk for the lender.
2. Your credit score
   If you have a poor credit score, many banks and other A lenders may reject your application or charge high interest rates. Fortunately, B lenders offer excellent mortgage products with low rates regardless of your credit history.
3. The use of your new property
   If you plan on renting out your new home to a tenant instead of living in it yourself, the mortgage rate you will have to pay will likely be higher.
4. The lifetime length of your loan
   You can insure a mortgage for up to 25 years. Taking out a mortgage with a longer amortization period could lead to higher rates.
5. The type of mortgage
   As we already looked at, your rate depends on the type of mortgage, whether it is fixed or variable, and open or closed. If you are refinancing, rather than renewing or purchasing a new mortgage, your rate could also be higher.

Current Mortgage Rates

Below we compare mortgage rates to find the best and worst lenders of 2021. You will see that the big 5 banks are not offering the best rates and that there are more attractive options offered by private lenders.

Best Canadian Bank Mortgage Rates

The big 5 banks are the first place many borrowers go to secure a mortgage. But are they the best choice for the lowest rates? Many clients are surprised to hear that they can get much better deals and stronger mortgage features with other institutions.

The big 5 banks include RBC Royal Bank, The Bank of Montreal, CIBC, Scotiabank, and TD Bank.

In Table 1 , we compare the best canadian bank mortgage rates for 5 year, fixed-rate mortgages.

Table 1:

Comparison of 5 Year Insured Fixed-Rate Mortgage Rates*

As you can see in Table 1 , the big banks like TD Bank, Scotiabank, RBC, BMO, and CIBC are nowhere near the top performing lenders of 2021 when it comes to offering the lowest 5 year fixed high ratio insurable rates. With so many mortgage products out there, do not miss out on the great features and excellent rates available elsewhere with other institutions or private lenders.

The big 5 banks continue to fall out of the running as other institutions are also offering much lower mortgage rates for 5 year variable rate mortgages, detailed in Table 2.

Table 2:

Comparison of 5 Year Insured Variable Rate Mortgages

For both fixed and variable mortgages, the big 5 banks cannot compete with the excellent rates that other institutions and monoline lenders are offering. If you are not able to qualify for a mortgage at a bank or AAA lender, then private lenders are offering more competitive rates these days and are not an option that most borrowers even consider. Although, with some private lenders offering rates as low as 3.49% for a 1-year interest-only mortgage, the monthly payments can sometimes be comparable to a regular mortgage from the bank. However, private mortgage lenders do tend to come with upfront fees that can range from as low as 1% to as high as 10% or even more.

Should I Get a Mortgage with a Bank, a Monoline Lender, a Trust Company, a Credit Union, or a Private Lender?

Many borrowers assume that banks are going to offer them the best rates and mortgage products without even considering other options that have less stringent qualification requirements along with highly competitive rates and mortgage features.

What is a Private Mortgage?

A private mortgage from a private lender is a shorter term loan, typically ranging between 1 to 2 years. Borrowers are only paying the interest for the loan each month, although they are charged more upfront lender and broker fees for the most part.

Banks and other institutional lenders often make it more difficult to qualify for a loan with their extensive list of qualification requirements. Private lenders recognize that many homebuyers get turned away from other lenders even though they can afford a mortgage. This is why private lenders tend to place a greater emphasis on the actual property and loan to value in order to make it possible for a borrower to get a loan with more flexible qualification rules when they might not qualify with a bank, credit union, or trust company.

Many borrowers get approved for a private mortgage loan within hours and the loan can in some situations get funded in as little as 48 hours provided all the necessary documentation and appraisals are available from the very beginning. In most private mortgage situations it can take 1 to 3 business days after applying for the mortgage to get approved, with funding made available after only a week or so.

After helping you qualify for a loan, a good mortgage broker who works with private lenders will also try to help you get approved with a prime lender or an alternative “B” lender at a better rate after a year or two. This will hopefully allow you to progress to a better mortgage product and will enable the private lender to collect the profit from their investment in your mortgage.

How to Get Approved for a Private Mortgage

The factors that private lenders consider when determining if you qualify for a loan differ from banks and other institutions. Whether you qualify is determined largely by the characteristics of the property and what you can contribute each month, rather than by your credit history. This is why many private mortgage lenders are asset-based lenders.

Banks and institutional lenders will not give most borrowers a chance unless they have excellent credit and in many cases will also require the borrower to have strong traditionally declared income. Private lenders, on the other hand, are much more flexible towards diverse credit histories and income situations, making it much simpler to qualify for a mortgage.

Here are the assessment criteria that many private lenders use:

1. The Condition of the Property
   The property you are getting a mortgage for should be in relatively good condition and often lenders require a property appraisal to assess the level of risk they are taking on.
2. Income
   Your income, whether salary-based or commission-based, is taken into account to assess whether you can afford monthly payments. However, a private lender will sometimes build in 1 year’s worth of payments into the principal loan amount so that the borrower does not have to make monthly payments throughout the year. Although this will eat into the equity that you will have left over in your home at the end of the mortgage term.
3. Down payment
   For most private mortgages, you need to make a downpayment of at least 15% to 20% when seeking mortgage approval. This will largely depend on location, property type and condition, and certain other factors that the lender will consider.

When You Should Turn to a Private Lender

Private lenders help borrowers receive immediate financing for their mortgage needs. Here are a few situations that private mortgages are designed for:

1. You Have an Untraditional Property
   The property you are trying to finance is not your typical property and a bank or other institutional lender refuses to provide you with a loan.
2. You Require Cash Fast
   To close the deal on your property, you need to get financing quickly and do not have time to go through the long approval process with a bank or institution. In many cases private lenders will get you approved within hours or days and you will have access to financing within a few days or weeks.
3. You Have a Poor Credit Score
   Most banks and institutional lenders will reject your application if you do not have a strong credit score. Private lenders assess your mortgage application strongly based on the characteristics of your property, rather than your credit score.
4. All You Need is a Short-Term Mortgage
   If you are in need of immediate financing for a loan for only a short period of time, private lenders streamline the approval process and get you interest-only financing quickly.
5. Your Income is Difficult to Verify
   Self employed income, income earned on a commission basis, and investment income can be more difficult to verify compared to a regular salary. While banks and institutional lenders make it harder to qualify with a nontraditional income structure, private lenders have less stringent income requirements.

How to Find the Best Mortgage Rate

The best way to make sure you are getting the best mortgage rate is to compare current mortgage rates. For up-to-date current mortgage rates at banks and institutions, check out Clover Mortgage’s mortgage rates to compare your options. Compare rates between different mortgage types and make sure you do not miss out on mortgages from private lenders that can be quite competitive from a monthly payment standpoint, and much easier to qualify for.

An expert mortgage broker at Clover Mortgage has access to the best rates from banks, institutions, and private lenders. Our professional mortgage brokers will compare all of the mortgage possibilities for you and show you the many benefits of working with a private lender instead of a traditional lender. Regardless of your income or credit history, we offer the lowest current mortgage rates in Ontario for any type of mortgage, which you can check out here . Clover Mortgage will handle all of your mortgage needs.