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?
If you want to score the cheapest mortgage rates for your Moncton home purchase, it’s important to understand the different kinds of mortgage products available. Whatever kind of mortgage you need, you can start your application on LowestRates.ca. The two main mortgage types are conventional mortgages and high-ratio mortgages.
With a conventional mortgage, you’ll need to make a down payment of at least 20% of the property’s purchase price. You then borrow the remaining amount, up to 80% of the purchase price, through your mortgage loan.
A high-ratio mortgage allows the homebuyer to make a lower down payment (less than 20% of the purchase price) and borrow more than with a conventional mortgage (above 80% of the purchase price). Homebuyers using high-ratio mortgages are required to carry mortgage insurance through the Canada Mortgage and Housing Corporation (CMHC).
A homebuyer may pay less interest over the life of the loan with a conventional mortgage, and they aren’t required to buy CMHC mortgage insurance. However, high-ratio mortgages can help customers buy homes with a more modest down payment requirement.
Conventional 5-year fixed mortgage rates vs. high ratio 5-year fixed mortgage rates in New Brunswick
|Date||Average Conventional Rate||Average High Ratio Rate|
Last Updated: April 1, 2021
Fixed rate vs. variable rate mortgages: which is cheaper?
Another way mortgages can vary is whether their interest rate changes or stays the same over the mortgage term. If you’re searching for the best mortgage rates in Moncton, it’s important to understand the difference between fixed rate and variable rate mortgages.
Fixed rate mortgages have the same rate throughout the mortgage term. With a variable rate mortgage, the mortgage rate changes along with market conditions. Variable rate mortgages have been among the best mortgage rates in Moncton and in Canada overall historically. However, in recent years, fixed mortgage rates in Moncton and throughout the country have been very close to variable mortgage rates for Moncton and other Canadian home loans.
Because of today’s unusual market conditions, to nab the lowest mortgage interest rate for your Moncton home purchase, you will need to check the latest rates listed for fixed vs. variable rate mortgage products.
5-year fixed vs. 5-year variable mortgage rates in New Brunswick
Last Updated: April 1, 2021
Factors that affect your Moncton mortgage rate
As lenders review your mortgage application, they take several factors into account as they decide whether to approve it, and if so, what mortgage interest rates to offer you.
Here are the main factors lenders use to calculate your Moncton home mortgage rate:
Down payment: The size of your down payment affects both the size of your mortgage loan and the mortgage rates you will be offered. Lenders generally offer the lowest Moncton mortgage rates when homebuyers make larger down payments relative to the cost of the home. In Canada, homebuyers have to make a down payment of at least 5% to 20% of the home’s purchase price. The federal government sets some additional rules about the size of the down payment you need to make based on the home’s cost:
- For a home valued at $500,000 or less: 5% of the home’s cost
- For a home valued at $500,000 to $999,999: 5% of the first $500,000 of the home’s cost, and 10% for the portion of the home’s cost above $500,000
- For a home valued at $1 million or more: 20% of the home’s cost
Remember, if your down payment is less than 20% of the home’s cost, you will need to budget for the required CMHC mortgage insurance.
Credit score: Another important factor lenders look at when setting mortgage interest rates for your Moncton home purchase is your credit score. Credit scores can range from 300 to 900, with higher scores indicating a stronger credit history (more experience using credit, as well as a positive payment history, among other factors). Financial institutions set their own minimum credit score requirements for mortgage loans, but most major Canadian lenders require at least a 600. CMHC's minimum credit score to provide mortgage insurance is 680, so you will need to clear this figure if your down payment is less than 20% of the purchase price, triggering the mortgage insurance requirement.
Employment and income: Mortgage lenders want to know what income you will use to make payments on the loan, so they will ask for information about your income sources and amounts and your employment history. You should include any investment and rental income along with paychecks from your job. Banks usually see full-time and longer-term employment as less risky than part-time work and self-employment. These factors in addition to the size of your paychecks may help you qualify for your Moncton mortgage loan as well as cheaper mortgage rates. If you are self-employed, you will need to provide additional documents describing your business and its finances. Lenders may ask for three years of tax returns, the most recent Notice of Assessment from the Canada Revenue Agency showing you don’t owe any back HST or GST payments, the business articles of incorporation and proof you are a principal owner in the business, your GST or business license, your business’s credit score and other records, like a cash flow statement, balance sheet and client contracts showing projected future income.
Debt service ratios: Along with the size of your down payment, credit score, employment and income, mortgage companies in Moncton will also consider two other factors when setting your mortgage interest rates. These are called debt ratios for short and there are two different types.
Gross debt service ratio (GDS): This is the percentage of your income that goes toward your housing expenses. Lenders generally want to see that you spend 35% or less of your gross annual income on housing costs to ensure you can afford to pay back your mortgage loan. When calculating your GDS figure, lenders include in your housing costs your monthly mortgage payment, heating costs and property taxes. If your home is a condo, they also count 50% of your condo fees.
Total debt service ratio (TDS): The TDS ratio adds together all the housing costs from your GDS ratio plus your other monthly debt payments. These might be for personal loans, auto loans or credit cards. Lenders divide this total by your gross annual income to calculate your TDS ratio. They typically want to see a TDS ratio below 42% to feel comfortable that your budget can accommodate your mortgage loan payments.
Typical mortgage amount in Moncton
The size of your Moncton home mortgage will depend on a number of factors, including the neighborhood, your mortgage interest rate and your down payment amount. The benchmark price for a single-family detached home in Moncton is $236,300, according to sales figures from the Canadian Real Estate Association (CREA). Assuming a down payment of 20% ($47,200), this means the average mortgage size for a detached house in Moncton is $189,100. This figure doesn’t include interest, since the amount of interest you pay will depend on the mortgage rate for your Moncton house and the length of your loan’s amortization period. Keep in mind that you may need to factor in the cost of CMHC mortgage insurance if you plan to make a down payment below 20% of the home’s purchase price.
Moncton’s housing market and home prices
Despite being relatively affordable compared to other cities in Canada, Moncton has seen rapid price increases over the last few years. A December 2020 report from the CMHC said “Moncton now exhibits evidence of price acceleration, a high degree of overvaluation and an overall high degree of vulnerability.”
The benchmark price for single-family detached homes in Moncton was $236,000 according to CREA January 2021 sales figures, a year-over-year increase of 22.7%. Townhome prices are rising more modestly at 5.3% year-over-year, with the benchmark price for these homes sitting at $163,600 in January 2021. During the same period, the typical price of a condominium in Moncton was $231,600, an increase of 11.7% from the same period a year earlier.
Single-family homes typically sell after 38 days on the market according to CREA’s Q4 data for 2020, while semi-detached homes spent an average of just 16 days on the market during the same period.
Moncton closing costs and land transfer tax
Closing costs include all the expenses that let you close the deal on your new home. These items can vary somewhat but a helpful rule of thumb is to expect to spend 1.5% of the home’s purchase price on your closing costs. Here’s what is typically included:
- Title insurance
- Mortgage default insurance (if applicable)
- Property valuation fees
- Home inspection fees
- Legal fees
- Home insurance
- Provincial sales tax (PST) on CMHC insurance
- Good and services tax (GST) or harmonized sales tax (HST) if you’re buying a brand new home or condo
Moncton homebuyers should also budget for the provincial land transfer tax as an additional part of their closing costs. In New Brunswick, the tax for land transfers is 1% of the property’s assessed value. Note that this can differ from the purchase price. For every $100,000 of the home’s value, the buyer will pay $1,000 in land transfer taxes to the province.
Your questions about Moncton mortgages, answered.
What’s the difference between a mortgage term and an amortization period?
The amortization period is the full life of your mortgage loan, whereas the mortgage term is the period you are committed to a specific lender.
Amortization period: This is how long you have to pay off your mortgage loan. The maximum amortization period allowed in Canada is 35 years, but 25 years is more typical. Twenty-five years is also the maximum amortization period allowed by CMHC to qualify for mortgage default insurance (remember, you’ll need this if your down payment is below 20% of your home’s purchase price).
Mortgage term: This is the length of your relationship with a specific lender under the conditions spelled out in your mortgage contract. The most typical mortgage term in Canada is five years, but terms can be anywhere from six months to 10 years. If you have a fixed-rate mortgage, your rate will remain the same for the duration of your mortgage term. Once your mortgage term ends, you can renew the contract at a new rate.
What’s the difference between an open mortgage vs. a closed mortgage?
Along with deciding between a fixed-rate and variable-rate mortgage for your Moncton home purchase, the other major decision you’ll need to make about the kind of mortgage to get is choosing between an open vs. a closed mortgage. Open and closed mortgages differ in how flexible they are about the timeframe for repayment.
Closed mortgage: With a closed mortgage, you pay back the loan in regular installments on a fixed schedule. Closed mortgages usually have lower interest rates than open mortgages. However, if you want to pay off the loan early, refinance or make extra payments, you’ll get hit with penalty fees. Some closed mortgages let you make limited additional payments without penalty. Terms differ by lender, so be sure to understand what’s allowed under your mortgage contract. This is the most common Canadian mortgage type, since for most buyers, they don’t plan to pay off their mortgages early and getting the lowest possible interest rate is more important.
Open mortgage: An open mortgage is usually the best choice for Moncton homebuyers who know they will want to refinance, pay off their mortgage ahead of schedule or move to a new home soon. Open mortgages allow you to make accelerated payments without penalty fees. In exchange for this greater flexibility, though, open mortgages typically have higher than average Moncton home mortgage rates.
How much does it cost to live in Moncton?
Located in southeastern New Brunswick, Moncton is at the geographic centre of the Maritimes. It’s also the former railway and land transportation hub for the region, hence its nickname, “Hub City.” The city offers visitors and locals everything from family outing destinations to an array of cultural venues and art installations. Moncton also boasts a strong economy despite some job losses during the pandemic. The unemployment rate for the greater Moncton metro area is 8.2% in January 2021, according to Statistics Canada.
Despite a recent upward trend in home prices, Moncton remains one of Canada’s most affordable housing markets, with most single-family homes selling for well under $250,000. The cost of living is dependent on a variety of factors, however, including whether you own or rent, maintain a personal vehicle and have dependents. New Brunswick auto insurance rates are among the cheapest in Canada, averaging just $867 per year according to the Insurance Bureau of Canada.
How much does getting a lower interest rate matter in Moncton?
It’s smart to seek out the lowest mortgage rates available today for your Moncton home, but keep in mind there are a number of factors to consider when shopping for any mortgage product. Here are a few other items to keep in mind.
Prepayment privileges: If an unexpected windfall comes your way, like a bonus from your employer or an inheritance or gift, you might want to put that money toward paying off your mortgage early. Or maybe you’re interested in making small additional payments on a regular basis to pay down the principal faster. It’s important to understand whether making payments beyond the minimum ones required under your mortgage contract will incur penalty fees. If so, this might cancel out any potential savings on interest—or even cost you more. Prepayment privileges, the right to make extra payments toward your mortgage loan without penalties, differ widely by lender and mortgage type, so be sure you understand how your contract works before you sign.
Penalty for breaking your mortgage early: These fees can amount to thousands of dollars, so it’s important to know the rules in your mortgage contract for what happens if you need to refinance or move before the term is up. Some penalties for breaking a mortgage early are high enough that they take the value out of refinancing, even if you can get a lower mortgage rate.
Portability: Mortgage portability means you can keep your existing mortgage if you move to a new home, usually combining it with a new home loan. Porting your mortgage can be a good way to avoid penalty fees for breaking your mortgage early when you need to move. This is something you’ll need to inquire about and negotiate before you sign your mortgage to make sure your lender will allow it when you’re ready to move.
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 the best mortgage rates in Canada, including Moncton. 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 Moncton. 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 Moncton, 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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