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?
Using LowestRates.ca, online visitors can apply for one of two types of mortgages: a conventional mortgage or a high-ratio mortgage.
Conventional mortgages and high-ratio mortgages differ in that the former requires a down payment of more than 20% of the purchasing price of the home and the latter allows a down payment of less than 20% of the purchase price.
If buyers opt for a high-ratio mortgage, they must also purchase mortgage insurance from the Canadian Mortgage and Housing Corporation (CMHC). Check out the chart below to compare conventional mortgages versus high-ratio mortgages in London.
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?
When considering the cheapest mortgage rates in London, you’ll want to weigh the costs of a fixed rate mortgage against a variable rate mortgage.
A fixed rate means the rate is static and won’t change during the length of your mortgage term. As you may guess, a variable rate works in the opposite manner, in that it’s going to fluctuate based on market conditions.
In early 2020, it seemed the better deal was a fixed rate but our recent comparisons of London’s fixed mortgage rates versus variable mortgage rates have shown that the results appear to be evening out. As it stands now, the rates are relatively on par.
See for yourself with our chart comparing 5-year fixed mortgage rates with 5-year variable mortgage rates in London.
5-year fixed vs. 5-year variable mortgage rates in Ontario
Last Updated: April 1, 2021
Factors that affect your London mortgage rate
Lenders examine a multitude of factors when considering the approval of a mortgage application and determining the best interest rate to offer. The following are some of the top criteria lenders use when trying to calculate a mortgage rate in London.
Down payment: When purchasing property, a down payment functions as a deposit and the mortgage covers the remainder. The exact amount of that down payment plays a big role in determining your London mortgage loan, as well as your mortgage rate. In Canada, the rule is that your down payment must make up 5-20% of your property’s final sale price.
If you’re unable to make a down payment of 20% or more of the final property cost, you’ll be required to buy CMHC mortgage insurance and include that in your financial planning.
Debt service ratios: Mortgage lenders estimate how much credit they think you’re entitled to based on your gross debt service ratio (GDS) and your total debt service ratio (TDS). They can be described as follows:
- Gross debt service ratio (GDS): The GDS ratio determines how much of your after-tax income will be allocated toward housing. This includes costs such as property taxes, mortgage payments, heating bills, and condo fees (if you’re buying a condo).
- Total debt service ratio (TDS): A TDS ratio is a calculation of all your monthly financial obligations designed to determine whether you can truly handle the cost of a mortgage loan. LIke the GDS, a TDS will include your property taxes, mortgage payments, and heating bills, but goes further as it also accounts for any student loans, lines of credit, credit card payments, car loans, etc.
The Financial Consumer Agency of Canada (FCAC) uses a GDS ratio of 32% and a TDS ratio of 40% as general guidelines but you can still qualify for a mortgage if your percentages exceed those numbers. You won’t want your numbers to be too much higher, however, because that means you’re at greater risk of living beyond your means and accumulating debt.
Credit score: Credit scores run the gamut from 300 to 900 and provide lenders with an idea of your “creditworthiness.” These numbers are calculated from reports completed by credit agencies that evaluate your debt, and your credit and payment history. Typically, credit scores from 660 to 900 are considered good to excellent. To obtain the lowest mortgage rate for a London house or condo, you’ll want your credit to land within this range. Minimum credit score requirements, however, will depend on the lender.
Income: Before doling out a loan, mortgage companies in London will want to see proof of income to ensure that you can meet your monthly costs. Beyond looking at your paycheques, they’ll want to see any earnings that come from rental income and investments. If you have an employer, they’ll want to know how long you’ve been working with them, and if you’re self-employed, they’ll want to see your tax returns from the last three years. They may also want other more detailed information, such as your business’s income statement, cash flow statement, and balance sheet.
Typical mortgage amount in London
The amount of your mortgage is dependent on your location, your down payment and your mortgage interest rate. As of December 2020, the Aggregate Composite Benchmark price for the London-St. Thomas area was $483,900, according to the Canadian Real Estate Association (CREA).
With that information, we can predict the average mortgage rate in London. If making a 20% down payment ($96,780) on the average home cost ($483,900), your mortgage would be $387,120. This, of course, doesn’t account for the amount paid over the lifespan of a mortgage. That will depend on how quickly you pay down your home and the mortgage rate of your house in London.
If you’re unable to make a down payment of 20%, then keep in mind that you’ll need to purchase CMHC mortgage insurance. This can be paid all at once or over a period of time with your mortgage payments.
London’s housing market and home prices
As mentioned above, the Aggregate Composite Benchmark of the entire London-St. Thomas area shows the average price of a home sitting at $483,900. However, the overall LSTAR (London & St. Thomas Association of Realtors) positions that average price at $555,324 instead. Both these numbers account for findings as of December 2020.
These numbers can be broken down further based on which corner of London you wish to reside in. London East, for example, has a lower average price of $434,195 (still up 25.2% from last year) and London North, in comparison, has an average home price of $674, 872, up 29.3% from December 2019. Despite these rapid increases, homes in London are less expensive than property in other major Ontario areas.
In December 2020, LSTAR reported selling 596 homes, 440 of which were single-family home dwellings. The remainder of sales went to townhouses (76) and apartments (52).
London closing costs and land transfer tax
Unfortunately, the spending doesn’t stop as soon as you determine your down payment and mortgage rate for your London home. You’ll also need to budget for closing costs, which can amount to approximately 1.5% of the home’s sale price (outside of the down payment).
Closing costs may include:
- Title insurance
- Mortgage default insurance (if applicable)
- Property valuation fees
- Home inspection fees
- Legal fees
- Home insurance
Since you’re buying a home in London, you’ll also be responsible for paying a land transfer tax. In Ontario, land transfer taxes are calculated as follows:
|Purchase Price||Tax Rate|
|$2 million +||2.5%|
Your questions about London mortgages, answered.
What’s the difference between a mortgage term and an amortization period?
In this section, we’re going to break down even more terms that will help you understand how to get the best mortgage rates in London, Ontario, Canada.
Mortgage term: A mortgage term describes the set period of time in which you’ll be mortgaging a home with a specific lender. These terms range anywhere from six months to 10 years. Once this term ends, borrowers can renew with their lender or switch to another one. It’s always a good idea to keep your eye out for the best mortgage lenders in London.
Amortization period: An amortization period can be described as the length of the entire mortgage and the amount of time it takes to pay down the home (including the interest). Canada’s current maximum amortization period is 35 years. For homeowners unable to make a down payment of 20% or more, their maximum amortization period is 25 years. They will also be required to buy CMHC mortgage insurance.
What’s the difference between an open mortgage vs. a closed mortgage?
Buyers in London should make mortgage rate comparisons between an open mortgage and a closed mortgage before making any final decisions.
Open mortgage: An open mortgage is known for its flexibility. The borrower can pay down the mortgage at their own pace without the repercussion of a fine. This can sometimes be a better option for homebuyers who don’t have their financial future entirely mapped out. The disadvantage of an open mortgage, however, is that lenders typically offer higher interest rates.
Closed mortgage: For would-be London homeowners, the lowest mortgage interest rates are typically found in closed mortgages. This means, at the end of the day, borrowers will be able to pay down their mortgages more quickly. While borrowers are given a fixed schedule for their entire term, closed sometimes let borrowers accelerate their payments with lump-sum deposits or greater monthly payments. Unlike with open mortgages, if the homeowner wants to refinance, negotiate or pay down their closed mortgage earlier, they will be charged a fine.
How much does it cost to live in London?
The cost of living in London is highly dependent on whether you own a home, rent, drive a car or commute with public transit.
If you’ve never lived or travelled to London, there are some things you may want to keep in mind before making a major purchase. For instance, London doesn’t have as complex a transit system as Toronto so many residents opt to buy a vehicle. If you follow suit, you’ll need to add auto insurance to your monthly expenses. Unfortunately, the province of Ontario has some of the highest auto insurance rates in Canada. Just like you’ll want to shop around for the best mortgage interest rates in London, you’ll want to search for the top auto insurance rates as well.
How much does getting a lower interest rate matter in London?
When buying a home in Ontario, finding low London mortgage rates should be one of your top priorities. But, you don’t want to overlook other avenues for making your mortgage more affordable. Learn how you can save money (or avoid extra expenses) by understanding the following:
Prepayment privileges: Prepayment privileges mean that you can pay down your mortgage earlier than expected without incurring a monetary charge. Banks and brokers have different rules around prepayment, so you’ll want to ask what their rules are around this before signing any contracts.
Penalties: If you buy a home in London, you’ll notice current mortgage rates can change over time. While it can be tempting to break your mortgage and go with another lender who has a better deal, you could wind up with some pretty hefty penalty fees. Homeowners also sometimes incur these fees when they refinance or move. Always read the fine print so you can assess whether the fees outweigh the benefits.
Portability: A portable mortgage can be a way to avoid paying penalties. By negotiating a portable mortgage in advance, you can transfer your mortgage to a different property and combine it with an additional mortgage loan. This is something to consider if you anticipate moving before the mortgage is entirely paid off.
Your questions about LowestRates.ca, answered.
How are mortgage rates determined on LowestRates.ca?
LowestRates.ca brings you London's best mortgage rates from 75+ banks and brokers 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 London. 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 London but also 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. This ensures we’re always finding 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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