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If you’re reading this, it means you’re considering buying a home — that’s a big milestone. Before you start looking at real estate listings, this page will prepare you for the first important step: finding the best mortgage rate from National Bank.
If you’re new to home loans, the amount of jargon and variables involved in a mortgage can make your head spin. This page will explain the different kinds of mortgages available, the pros and cons between them, and some of the costs involved with getting a mortgage through National Bank.
Before we get started, here are some quick facts you should know:
Mortgage term vs. amortization period: The full amount of time it takes to pay off your home is called the amortization period. A mortgage term can last anywhere from six months to 10 years. You’ll likely go through multiple mortgage terms before paying off your home.
Fixed rate vs. variable rate mortgages: Fixed and variable mortgages offer two different ways of determining interest on your loan. A fixed rate, as the name implies, will keep the interest rate at a certain rate throughout the mortgage term. A variable rate will change based on the National Bank’s prime interest rate for a mortgage.
All of this knowledge will help keep you informed when shopping around for a mortgage. One of the best ways to compare National Bank mortgage loan rates today is online through LowestRates.ca. Our free, no-obligation tool allows you to compare mortgage rates from 75+ Canadian banks and brokers.
If you’ve been looking into getting a mortgage for the first time, you might be asking: what exactly is a prime rate, and how does it affect me?
The easy answer is that a prime rate is a baseline interest rate used by banks and other financial institutions to determine interest rates on loans such as lines of credit or variable rate mortgages. The prime rate acts as a starting point for how much your mortgage will cost you. Generally, the interest you pay on a mortgage will be the prime rate, plus the additional interest rate the bank has set for you.
Financial institutions set their own prime rates, but Canada’s big banks tend to have the same or similar prime rates. The main influence on the prime rate is the Bank of Canada’s policy interest rate. As Canada’s central bank, the Bank of Canada sets its policy interest rate based on various economic factors with the goal of keeping the country’s inflation low and stable. The Bank of Canada’s policy interest rate and banks’ prime rates aren’t always the same, but they’re closely related.
Based on the prime rate, financial institutions like National Bank will publicly advertise various rates for their mortgage products. These are called posted rates. These rates are made easy to find, and cover different kinds of mortgages, such as variable rate and different kinds of fixed rate mortgages.
Posted rates don’t take into account some of your personal finance attributes or financial needs. Homebuyers may also be able to negotiate down from the posted rate, and a small decrease in interest rates could lead to big savings down the road.
One of the best ways to compare National Bank mortgage rates with offerings from other financial institutions is by using LowestRates.ca. In just three minutes, you can enter information specific to your situation and get the best mortgage for you.
To put it simply, a fixed rate mortgage from National Bank (or any other lender) won’t change during the agreed upon mortgage term.
Mortgage terms can vary depending on what’s best for you. They can be as short as six months, or as long as 10 years. It’s worth noting that shorter term fixed rate mortgages can be open, meaning that you can make higher payments or sometimes even pay off the entire mortgage without penalties if you wish. Longer term agreements are generally closed, meaning your options are limited to pay down extra debt earlier. However, you may get a better interest rate with a long-term closed mortgage, since there’s more commitment involved.
So, why choose a fixed-rate mortgage? One of the benefits is you’ll have peace of mind knowing that your payments won’t fluctuate for the term period. That also means you’ll never be surprised by how much of your loan is actually getting paid off with each payment, as opposed to how much of your payments are going towards interest.
The downside is that interest rates can be higher for fixed rate mortgages. However, you’ll be protected from higher costs if interest rates rise.
As the name implies, the interest rate in a variable rate mortgage can change. These changes can occur based on the prime rate.
Depending on your agreement with a financial institution, a change in the prime rate could affect your loan payments on even a month-to-month basis.
Whether or not interest rate changes affect your monthly mortgage payments depends on whether your contract has fixed or adjustable payments. With adjustable payments, your mortgage payment amount will change if the interest rate goes up or down. With fixed payments, your monthly payment stays the same if interest rates go up, but more of it goes toward interest rather than paying off the principal amount. Your monthly payment amount will also stay the same if interest rates go down, but more of your payment will go toward the principal.
There’s opportunity to benefit from a variable rate mortgage if interest rates go down, but as previously explained, there’s also risk.
National Bank offers a variety of different options to help different kinds of homebuyers, such as a first-time buyer.
Some are aimed at providing mortgages for a secondary home, like a cottage or a ski condo. These products are a little different, as the amortization period can only be a maximum of 25 years, and there are limits to how much financing you can receive depending on how often the home is used.
National Bank also offers a way of combining your debts by purchasing a house with what they call a home equity line of credit. This allows you to access up to 65% of the equity of your home at any time, depending on how much of your home’s debt you’ve already paid off.
This gives you greater financial autonomy for other investments or purchases down the road, since you won’t have to apply for a new loan to access more credit. However, there are stricter terms for you to be eligible. For example, you have to have made a 20% down payment on your home to qualify.
Once you’re ready to buy a home and have an idea of what kind of mortgage plan is best for you, you’ll need to get a mortgage pre-approval.
A mortgage broker can help you with this process and will need lots of information about your personal finances to help understand your borrowing capacity.
Some of the information they’ll need includes your credit score, your proof of income and any documents about your investments and assets. They’ll also need to know how much money you’ve saved for a down payment on your home.
Every financial institution has different requirements around what information they need. National Bank’s mortgage pre-approval requirements can be found on its website, and include:
These requirements are just for mortgage pre-approval. When you actually apply for a mortgage through a lender like National Bank, you’ll need to provide additional documentation based on the type of property you’re buying.
Pre-approval is an important part of the home-buying process because it sets the tone of what you can afford, and what some of your mortgage options will be. With National Bank, you’ll get a 90-day hold on the interest rates you’ve been quoted. You’ll have an idea of what your monthly payment would look like, and you’ll also know the maximum loan amount you actually qualify for.
Remember, a pre-approval does not necessarily mean your mortgage application will go through. The only way to finalize the process is to apply.
The answer to this question varies on many factors about your financial life. Three of the most important things to consider are your down payment, your income and the amount of debt you’re already carrying.
According to guidelines from the Canada Mortgage and Housing Corporation (CMHC), the total costs of your home (including mortgage payments, taxes, utilities etc.) should not be more than 35% of your gross income (gross means before taxes and other deductions). This is called the gross debt service ratio.
The other rule of thumb is your total debt service ratio shouldn’t be more than 42% of your total income before taxes and other deductions. Total debt includes housing costs plus any other debt repayments such as credit cards, student loans and car loans.
The terms and conditions depend on the kind of mortgage you end up going for, and can also depend on the various negotiations you make with National Bank.
Any time you break a condition outlined in your mortgage agreement, there’ll likely be a fee or penalty to go along with it.
For example, if you’re in a 5-year closed mortgage and decide you want to make larger payments so your mortgage is paid off quicker, you may be charged a fee to do so. You’ll also be penalized for breaking your mortgage contract, which can happen if you pay off your home early or decide to switch to another loan provider.
The exact fees and penalties vary on the type of mortgage you’ve received, and the terms you’ve negotiated with National Bank. It’s important to understand the terms and conditions of your mortgage before signing.
Mortgage loans are a little different from other types of credit, since you’ll often have outstanding debt at the end of your term (unless you’ve paid off the entire amount of your mortgage at the end of your term).
For example, if you enter into a 5-year fixed rate term for a house that will take many more years to pay off in full, you’ll have to either renew with National Bank or shop around with other lenders.
The success of your renewal will bank on your financial health, and the current market value of your home.
If you’re looking to shop around at the end of your mortgage term, you can use LowestRates.ca to compare providers for your mortgage renewal.
The total amount of time it will take you to pay off your mortgage is referred to as the amortization period.
Since there can be many variables involved in a mortgage agreement, your amortization period can vary too. A rough idea of how long it’ll take to pay off your mortgage will be given when entering into a mortgage agreement, and it’ll be based on the amount you’re planning to pay monthly towards your mortgage. But there are situations where this can change.
For example, if you are in a variable rate mortgage agreement, changes in the prime rate mean your mortgage could be paid off in a shorter or longer time period.
If your financial situation has changed significantly at the end of your mortgage term, that can have implications on your amortization period as well.
In other kinds of loans, you can speed up the amortization period by increasing payments, but this could lead to additional fees if you entered into a closed mortgage agreement.
The simple answer is that the quickest way to pay off a mortgage is to enter an agreement with the highest monthly payments you can afford.
However, if you’re confident that your financial situation could improve for the better in the near-term from a promotion or an inheritance, you could help pay off your loan sooner by entering into an open mortgage agreement. These agreements have higher interest rates, but allow you to make prepayments without incurring a penalty.
Even if you’re entering a closed or hybrid agreement because you prefer the stability and lower interest rates, you may be able to negotiate a certain amount of allowable prepayments before a fee is charged by the bank
As with many questions around mortgages, the answer is: it varies.
You can “break” a mortgage by paying it early or moving the debt to another lender for example.
The exact amount that you have to pay will depend on the terms of the particular mortgage agreement you entered into.
National Bank offers a calculator on their website to give an idea of how much breaking a mortgage with them will cost. Some of the variables it takes into account are:
LowestRates.ca works with 75+ banks and brokers across the country to bring you the best rates. 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. 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.
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 across the country.
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.
This article has been updated from a previous version.*
When it comes to shopping for mortgages, most homebuyers in Canada tend to take a conservative approach.