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?
Before you start searching for the cheapest mortgage rates in Kitchener-Waterloo, you’ll need to figure out how much money you can put toward a down payment. There are two types of mortgages based on your down payment amount: conventional and high-ratio.
A high-ratio mortgage is where the buyer’s down payment is less than 20% of the home’s purchase price. In this scenario, the buyer is required to buy mortgage insurance from the Canada Mortgage and Housing Corporation (CMHC), or private insurance companies Sagen and Canada Guaranty. Mortgage insurance protects the lender if you stop making your mortgage loan payments, and will add to the total cost of your mortgage.
A conventional mortgage means the buyer has a down payment that is at least 20% of the home’s purchase price. For example, if a home costs $500,000, a conventional mortgage requires a down payment of at least $100,000.
Here’s a look at conventional 5-year fixed vs. high-ratio 5-year fixed mortgage rates.
Conventional 5-year fixed mortgage rates vs. high ratio 5-year fixed mortgage rates in Ontario
|Date||Average Conventional Rate||Average High Ratio Rate|
Last Updated: April 1, 2021
Fixed rate vs. variable rate mortgages: which is cheaper?
Subtract your down payment from the home’s price, and the remaining amount is the balance of your mortgage. You can choose between two types of mortgage rates for your Kitchener-Waterloo home: fixed rate or variable rate.
A fixed rate means your interest rate stays the same for the entire mortgage term, whether it’s six months or 10 years.
If you decide to choose a variable rate mortgage for your Kitchener-Waterloo house, it’s subject to change based on market conditions like the Bank of Canada’s overnight lending rate, which is used as a benchmark by banks to set the interest rates they offer to their customers.
Over the last year, fixed and variable mortgage rates have inched closer and closer together. Here’s a look at 5-year fixed vs. five-year variable rates in Ontario over the last year:
5-year fixed vs. 5-year variable mortgage rates in Ontario
Last Updated: April 1, 2021
Factors that affect your Kitchener-Waterloo mortgage rate
The average mortgage rate for a home in Kitchener-Waterloo depends on how much cash you can afford to put down up front, your monthly debt obligations, credit history and how much income you earn. Here are a few factors lenders consider when deciding whether or not to approve your mortgage application, and what interest rate they’ll offer.
Down payment: Your down payment amount is the biggest contributor to the size of your Kitchener-Waterloo mortgage loan. Home buyers are required to have a down payment of at least 5% of the home’s purchase price, depending on how much the house costs. Here are the rules according to the federal government.
- A home that costs $500,000 or less: 5% of the purchase price
- A home that costs $500,000 to $999,999:5% of the first $500,000 of the purchase price, and 10% for the portion above the purchase price above $500,000
- A home that costs $1 million or more: 20% of the purchase price
Debt service ratios: Since mortgage payments will add to any existing debt, lenders want to know your monthly debt payment obligations. There are two types of ratios lenders use to measure household debt.
Gross debt service ratio (GDS): Your GDS is the percentage of your income that goes toward paying for housing. This includes your mortgage, property taxes, heating costs and 50% of your condo fees (if applicable). The lender then divides this by your gross annual income. If more than 35% of your paycheck is eaten up by housing costs, your lender may doubt your ability to make your payments.
Total debt service ratio (TDS): Your TDS ratio is everything that comprises your GDS ratio plus any other monthly payments you have to make. These could include things like credit card debt, loan payments and car payments. The total is divided by your income. If the result is greater than 42%, your lender may doubt your ability to make your monthly payments.
Credit score: Your credit score ranges from 300 to 900, and is a way for lenders to judge how reliable you are when it comes to paying your bills on time. Your borrowing history may include credit cards, line of payment, utilities, cell phone, internet and/or cable bills. A higher credit score signals to lenders that you’re a responsible borrower, so you’ll likely be able to secure the lowest mortgage interest rate for your Kitchener-Waterloo home. If you’re required to buy mortgage insurance from the CMHC because your down payment is less than 20% of the home’s purchase price, the CMHC requires a credit score of at least 680.
Employment and income: Lenders will look at how much income you earn from sources such as a salaried job, rental income or investments, the type of employment (full-time, casual, temporary or seasonal) and the length of employment. If you’re self-employed, you’ll need to provide tax returns from the last three years, copies of the articles of incorporation for your business, business or GST licence, and your personal and business credit scores. To prove your income, you’ll also need to provide supporting documents such as an income statement, cash flow statement and balance sheet.
Typical mortgage amount in Kitchener-Waterloo
To calculate the amount of your Kitchener-Waterloo mortgage, you’ll need to consider the home price, the down payment amount and the mortgage interest rate. The benchmark price of a single-family home in Kitchener-Waterloo is $709,600, according to the Canadian Real Estate Association (CREA). With a 20% down payment ($141,920), the mortgage would be $567,680. This amount doesn’t include interest paid over the lifespan of the mortgage, which depends on the mortgage interest rate and amortization period.
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. CMHC insurance premiums depend on the size of your down payment. For example, on a $500,000 home where you have a down payment of 5% ($25,000). With a mortgage insurance premium rate of 4%, your mortgage insurance premium would be $19,000 and your total mortgage amount would be $494,000.
Your mortgage insurance premium can be paid as a lump sum or added to your mortgage payments.
Kitchener-Waterloo’s housing market and home prices
Like many cities in southern Ontario within driving distance of Toronto, Kitchener-Waterloo home prices have climbed sharply in recent years. According to data from CREA, the benchmark price for a single-family home in Kitchener-Waterloo increased by 27.7% between February 2020 and February 2021, going from $612,300 to $788,500. Over the last five years, benchmark prices for single-family homes have more than doubled.
Condos and townhouses continue to see similar price spikes. Year over year, benchmark condo prices in Kitchener-Waterloo rose 38% to $341,200 as of February 2021. The benchmark price for a townhouse is $526,700, up 33% year-over-year.
Kitchener-Waterloo closing costs and land transfer tax
After buying your home, closing costs refer to all the odds and ends you need to close the deal. A general rule of thumb is to budget 1.5% to 4% of the home’s purchase price to cover closing costs (excluding the down payment). Closing costs may include:
- Mortgage processing fees
- Appraisal fee
- Home inspection fee
- Title insurance
- Legal fees and disbursements
- Property tax adjustment
- Provincial sales tax (PST) on CMHC insurance (in Ontario, it’s 8%)
- Good and services tax (GST) or harmonized sales tax (HST) if you’re buying a brand new home or condo
Closing costs may also include a provincial and/or municipal land transfer tax. The province of Ontario calculates land transfer in the following way:
|Purchase Price||Tax Rate|
|$2 million +||2.5%|
Example: on a home worth $500,000, you would pay $6,475 in land transfer taxes.
Your questions about Kitchener-Waterloo mortgages, answered.
What’s the difference between a mortgage term and an amortization period?
A mortgage requires you to make regular payments for a certain period of time — but for how long? That’s where the mortgage term and amortization period come in.
Mortgage term: The term is the length of time you’re locked into your mortgage contract at a specified interest rate. At the end of the term, borrowers can renew their contract at a new rate. Mortgage terms can range from six months to 10 years. The most popular mortgage term in Canada is five years.
Amortization period: The total number of years it will take you to pay off your mortgage balance, including 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 have to buy CMHC mortgage insurance, the maximum amortization period is 25 years.
What’s the difference between an open mortgage vs. a closed mortgage?
When it comes to paying off your mortgage, there are two types of payment structures to choose from.
Open mortgage: This type of mortgage can be paid off in full at any time without penalty, and typically has a shorter term (up to five years). Open mortgages are more flexible and are geared toward 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. But there’s a tradeoff: open mortgages interest rates are usually a little bit higher.
Closed mortgage: You’ll typically pay lower interest rates with a closed mortgage, but you’re required to make regular payments on a fixed schedule for the entire term. If you want to refinance, renegotiate or pay off your closed mortgage before the term is up, you’ll be charged a penalty. However, some lenders will allow you to make accelerated payments up to a certain amount each year. Every lender will have its own terms and conditions around closed mortgage prepayments.
How much does it cost to live in Kitchener-Waterloo?
Kitchener and Waterloo are two cities in the Regional Municipality of Waterloo and along with Cambridge, they comprise the “tri-cities.” Depending on whether you’re a homeowner, renter, driver or commuter, your cost of living in Kitchener-Waterloo will vary.
In addition to your mortgage interest rate and cost of a home, prospective Kitchener-Waterloo homebuyers should consider a number of other costs to consider when thinking about relocating. If you own a vehicle, one of the biggest costs may be auto insurance. Ontario has the second-highest car insurance rates in Canada, and the Kitchener-Waterloo region is surrounded by a number of high-density highways.
How much does getting a lower interest rate matter in Kitchener-Waterloo?
If you’re house hunting in Ontario, securing a low Kitchener-Waterloo 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 banks and brokers will offer different prepayment terms, so it’s important to raise the issue before you sign your contract. A prepayment privilege allows you to pay off your mortgage early without having to pay an additional fee.
Penalties: If you need to break your mortgage, which you may need to do when you refinance or move, you may be required to pay thousands of dollars in penalties. While you may wind up with a better rate, if you choose to go with a different lender, it’s important to look at the fine print to ensure that it won’t cost you more than you’ll gain.
Portability: One way to avoid these penalties is to negotiate a portable mortgage. This means that if you move, you can transfer your mortgage to a new home and combine it with an additional mortgage loan.
Your questions about LowestRates.ca, answered.
How are mortgage rates determined on LowestRates.ca?
LowestRates.ca works with more than 75 banks and brokers to bring you the best mortgage rates from lenders in Canada, including Kitchener-Waterloo. 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 Kitchener-Waterloo. 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. Your credit score won’t be affected and your information is secure. We don’t share your information with anyone unless you want to connect with a mortgage broker. 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 Kitchener-Waterloo, but across the country.
How do I know I’m getting the lowest rate?
We have a strong selection of lenders on LowestRates.ca including the big banks and many independent providers and we’re adding more lenders all the time. This ensures we’re always delivering you a competitive rate. 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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