Variable rates are expected to stay low until at least 2023, whereas fixed rates are on the rise.
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Conventional vs. high-ratio mortgages: which is cheaper?
Based on the size of your down payment, there are two main types of mortgages you can apply for: conventional mortgages and high-ratio mortgages. Mortgages fall under two main categories — conventional or high-ratio — and it’s based on the size of your down payment.
A mortgage is considered high-ratio when the down payment is less than 20% of the home’s purchase price. In this scenario, buyers are required to purchase mortgage insurance from the Canadian Mortgage and Housing Corporation (CMHC). CMHC insurance premiums depend on the size of your down payment. Your mortgage insurance premium can be paid as a lump sum, or added to the cost of your mortgage.
For a conventional mortgage, buyers need a down payment of at least 20% of the home’s purchase price. Conventional mortgages don’t require CMHC insurance.
Conventional 5-year fixed mortgage rates vs. high ratio 5-year fixed mortgage rates in Alberta
|Date||Average Conventional Rate||Average High Ratio Rate|
Last Updated: April 1, 2021
Fixed rate vs. variable rate mortgages: which is cheaper?
While searching for the cheapest mortgage rates in Edmonton, you’ll need to decide between a fixed or a variable rate structure. While fixed and variable rates have been closer than ever on LowestRates.ca over the past year, there are a few differences between the two.
Fixed rate mortgage: A fixed mortgage rate doesn’t change for your entire mortgage term, so you have the stability of fixed monthly payments. The tradeoff is that fixed mortgage rates are generally higher than variable rates. The five-year fixed rate mortgage is the most popular type of mortgage in Canada.
Variable rate mortgage: A variable rate can change over the course of your mortgage term based on market conditions, including the overnight lending rate set by the Bank of Canada. The Bank of Canada’s lending rate influences the prime rate set by lenders. If the prime rate goes up, so does your mortgage rate. If it goes down, your mortgage rate does too.
Here’s a look at 5-year fixed mortgage rates vs. 5-year variable mortgage rates in Alberta:
5-year fixed vs. 5-year variable mortgage rates in Alberta
Last Updated: April 1, 2021
Factors that affect your Edmonton mortgage rate
When you apply for a mortgage, lenders look at a few different factors when deciding whether or not to approve your application (and what interest rate they can offer). Here’s what they look at to calculate your Edmonton mortgage rate:
Down payment: When you buy a home, you’ll need to put down a certain percentage of the purchase price up front. Even in an affordable city like Edmonton, your down payment is important: it determines the size of your mortgage loan, and factors significantly into the lowest Edmonton mortgage interest rate you’ll qualify for. A higher down payment means a smaller mortgage, and signals to lenders that you’re less of a borrowing risk and will likely make your mortgage payments on time.
In Canada, federal mortgage rules require homebuyers to put down at least 5% to 20% of the total sale price, depending on the price of the home. Here’s how it works:
- A home that costs $500,000 or less: Your down payment must be at least 5% of the purchase price.
- A home that costs $500,000 to $999,999: Your down payment must be a minimum of 5% of the first $500,000 of the home’s purchase price, and 10% for the portion above the purchase price above $500,000.
- A home that costs $1 million or more: Your down payment must be at least 20% of the purchase price.
Remember: If your down payment is less than 20% of the total price of the home, you’ll need to purchase mortgage insurance from the CMHC. Mortgage insurance isn’t available for homes that cost more than $1 million.
Debt service ratio: Besides your down payment, mortgage lenders also consider how much money you owe. They look at two different types of debt ratios:
Gross debt service ratio (GDS): Gross debt service is the amount of money your household pays toward housing each month. Your GDS ratio is calculated by adding up the cost of your mortgage, property taxes, heating costs and 50% of your condo fees (if applicable), then dividing it by your annual household income before taxes. In its guidelines for lenders, the CMHC says the maximum household GDS should be 35%.
Total debt service credit ratio (TDS): TDS takes into account housing expenses plus all other monthly debt obligations (credit card debt, loan payments, car payments, etc.), added up and divided by your annual household income before taxes. A household’s TDS ratio should be less than 42%, according to CMHC guidelines, but some lenders may make exceptions for borrowers with high credit scores and stable incomes.
Credit score: Your credit score ranges from 300 to 900, and is calculated by looking at factors including payment history, number of open accounts, length of credit history and total debt levels. Lenders use it to gauge your financial trustworthiness. Your score directly affects whether you’ll be approved for a mortgage and the interest rates lenders will offer. The higher your credit score, the more likely it is that lenders across Canada can offer the best mortgage rates for Edmonton.
Income: Whether you have a salaried job or earn income from a rental property or investments, lenders want to know how much money you have coming in on a regular basis. Lenders will ask about the type of employment (full-time, part-time, casual, temporary or seasonal) and how long you’ve been employed for. If you’re self-employed, you’ll need to show three years of tax returns, your personal and business credit score, business articles of incorporation, proof of ownership, business or GST licence and other supporting documents for your business such as an income statement, cash flow statement and balance sheet.
Typical mortgage amounts in Edmonton
The size of your Edmonton mortgage loan will depend on where you live, your down payment and your mortgage interest rate. The benchmark price for a single family detached home in Edmonton is $378,100 as of November 2020, according to the Canadian Real Estate Association (CREA). For a buyer with a 20% down payment ($75,620), the mortgage would be $302,480. This amount doesn’t include interest paid over the lifespan of the mortgage, which depends on the mortgage interest rate.
Remember, if your down payment is less than 20%, you’re required to buy CMHC mortgage insurance. This will increase the cost of your mortgage and the amount of interest you’ll pay.
Edmonton’s housing market
Like the Prairies, Edmonton’s housing market is flat. While benchmark prices for detached homes in Edmonton increased from $368,400 to $378,400 between November 2019 and November 2020, home prices are down slightly from the same period in 2017 ($380,300) and 2015 ($392,200).
Townhouse prices saw a modest year-over-year increase, with the benchmark price of a townhouse in Edmonton rising 0.9% from $209,900 in November 2019 to $211,900 in November 2020. The benchmark price of an apartment was $181,600 in November 2020, down 3% from $187,500 in November 2019.
The Realtors Association of Edmonton reported a total of 17,036 residential homes sold in 2020, an increase of 2.94% compared to 2019.
Single-family detached homes in the Edmonton area take an average of 53 days to sell, compared to 62 days for condos and 57 days for duplexes.
Edmonton closing costs and land transfer tax
After buying the property itself, closing costs are the final expenses you need to pay to close the deal. It’s usually advised to budget at least 1.5% of the home’s purchase price to cover closing costs (not including the down payment). When buying a home in Edmonton, closing costs may include:
Closing costs may include:
- Mortgage processing fees
- Appraisal fee
- Home inspection fee
- Title insurance
- Legal fees and disbursements
- Property tax adjustment
- Federal goods and services tax (GST) if you’re buying a brand new home or condo (Alberta doesn’t charge provincial sales tax)
Alberta is unique in that it doesn’t charge homebuyers a provincial land transfer tax. Residents have to pay a smaller land transfer registration fee and mortgage registration fee, but both of these fees are much cheaper. Here’s how the fees are calculated:
Land transfer registration fee: A base cost of $50, plus an additional $1 for every $5,000 of the property value.
Mortgage registration fee: Base cost of $50, plus an additional $1 for every $5,000 of the mortgage amount.
For example, on a home with a property value of $250,000 and a mortgage of $200,000 (assuming you made a 20% down payment of $50,000), you would pay $100 for a land transfer registration fee and $90 in a mortgage registration fee.
Your questions about Edmonton mortgages, answered.
What’s the difference between a mortgage term and an amortization period?
Mortgage term: A mortgage term is the length of time homeowners are committed to their lender and interest rate. When the term ends, you can renew your contract at a new rate. Mortgage terms can range from six months to 10 years in Canada, but the most popular term is five years.
Amortization period: The amortization period is the total amount of time it will take you to pay off your mortgage loan’s principal, plus the interest. In Canada, the maximum amortization period is 35 years. If your down payment is less than 20% of the total price of the home and you’re required to purchase CMHC mortgage insurance, your maximum amortization period is 25 years.
What’s the difference between an open mortgage vs. a closed mortgage?
In addition to choosing a mortgage term, amortization period and between a fixed or variable rate mortgage, Edmonton buyers will also need to decide between two types of mortgage payment structures: open or closed.
Open mortgage: An open mortgage can be paid off in full at any time during the mortgage term without penalty. Open mortgages usually have variable interest rates, which can change over the course of the term. This type of mortgage typically has shorter terms (up to five years). Open mortgages are usually for people who want to make additional or increased mortgage payments, pay off the mortgage early, or move to a different home in the near future.
Closed mortgage: A closed mortgage requires you to make fixed payments on a set schedule for the entire term. Closed mortgage rates are usually lower than open mortgage rates. But if you want to want to refinance, renegotiate or pay off your closed mortgage before the term is up, you’ll be charged a penalty. Some lenders will allow you to make accelerated payments up to a certain amount or percentage of the mortgage principal each year, but every lender has different terms and conditions around prepayments.
How much does it cost to live in Edmonton?
The cost of living in a city like Edmonton will depend on a few things, like whether you’re a homeowner, renter, driver or commuter. But compared to other Canadian cities with more than a million residents, Edmonton is very affordable.
Overall, Alberta has a low cost of living — there’s no provincial retail sales tax, residents have the highest average wages in Canada and housing prices aren’t outrageous compared to cities like Toronto and Vancouver. And as long as interest rates stay at record lows, average mortgage rates in Edmonton will be low too.
Along with housing, food, internet and cell phone plans, another major cost to consider is car insurance. After British Columbia and Ontario, Alberta is the third most expensive province for car insurance rates. Edmonton is a large city with more density and traffic compared to smaller towns, which means a higher likelihood of collisions. It also means more theft — Alberta also has the highest rate of vehicle theft in the country, accounting for nearly one-third of Canada’s car thefts. However, Edmonton does have lower average gas prices compared to the national average.
How much does getting a lower interest rate matter in Edmonton?
If you’re house hunting in Alberta, securing a low Edmonton mortgage rate is one great way to save money on your mortgage. However, it’s one of many things you can do to increase the overall affordability of your mortgage. Some of these features might include prepayment privileges and portability.
Prepayment privileges: Some lenders will offer prepayment privileges as part of your mortgage contract. This allows you to pay off your mortgage earlier without being charged a financial penalty. You can increase the amount of your monthly mortgage payments, up to a certain amount or percentage each year. Prepayment rules will vary between lenders, so it’s important to investigate the issue before you sign your contract.
Penalties: If you move houses before your mortgage term is up or want to refinance, you’ll need to break your mortgage. If you do this, you may be required to pay thousands of dollars in penalties. If you’re looking to break your current mortgage for a better rate with another lender, it’s important to look at the fine print to ensure that it won’t cost you more than you’ll gain.
Portability: A portable mortgage is one way to avoid paying penalties if you need to break your mortgage before the term is up. Porting a mortgage means taking the existing mortgage contract and interest rate you have for your current home and transferring it to a new home. This means you won’t have to restart the mortgage application process from scratch, and you don’t have to worry about paying penalties.
Your questions about LowestRates.ca, answered.
How are mortgage rates determined on LowestRates.ca?
LowestRates.ca works with 75+ banks and brokers to bring you low Edmonton mortgage interest rates from lenders across Canada. We work with our partners to obtain their best deals and offers, and then we let them compete for your business. All you have to do is answer a few questions, and in minutes you’ll be provided with today’s mortgage rates for Edmonton. There’s no obligation, but you can choose to speak with our broker partner to secure your best rate and see if you're eligible for more savings.
Is it safe to get a mortgage online?
Yes, it’s safe — you no longer need to visit a bank branch or mortgage broker’s office in person to apply for a mortgage. It’s becoming increasingly common for Canadians to apply for mortgages online. LowestRates.ca only works with reputable, trustworthy financial institutions. We take care of the heavy lifting by comparing the market for you, and can connect you with the best mortgage lenders not only in Edmonton, but across the country.
How do I know if I’m getting the lowest rate?
We have a strong selection of lenders on LowestRates.ca from the big banks to many independent providers, including mortgage companies in Edmonton. This ensures we’re always finding you the best rate out there. Even if you’re not ready to commit to anything, you can use our site as a starting point for research (it’s totally free, and you’re under no obligation).
The better informed you are, the more likely you'll negotiate a better deal for yourself. And, really, that’s what we care about the most.
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