Searching for the ideal mortgage in Ontario? We understand the importance of finding the best mortgage deal that suits your needs, and we’re here to guide you through the process.
Ontario has an extensive network of lenders, providing you with an ideal opportunity to secure a favorable mortgage rate. However, it’s crucial to stay informed about current market trends and interest rates to ensure you make the best decision.
In this article, we’ll share how to secure an ideal mortgage deal in Ontario tailored to your needs.
The Role of Mortgage Brokers in Ontario
A mortgage broker acts as an independent intermediary between the lender and the borrower. Their primary responsibility is to connect mortgage-seeking borrowers with lenders. Whether you’re looking to refinance and renew your mortgage or you want to purchase a home, a mortgage broker can help you streamline the entire process.
These brokers assess your borrowing needs and compare them against the mortgage product offerings available from various lenders. Once the brokers find a suitable fit for your requirements, they share the options with you.
Should I Hire a Mortgage Broker?
The answer, in a word, is yes (this holds if you want to ease up the home-buying process).
Mortgage brokers deal with a dozen lenders, which include banks, credit unions, and private investors. They know about extensive mortgage options available in the housing market, and this information isn’t easily accessible for a first-time homebuyer.
Therefore, it’s possible to get a low-interest rate by working with a mortgage lender – all thanks to their extensive network. But that’s not all.
If you decide to apply for a mortgage independently, you’ll likely visit multiple lenders. However, there’s a problem. Applying to several lenders means that each time you apply, the lender will check your credit, ultimately reducing your credit score.
In contrast, a mortgage broker safeguards your credit score by conducting only one or two credit checks, minimizing the overall impact.
Additionally, a broker will objectively assess your income and credit history to determine how much mortgage you can afford. Therefore, this helps the borrower’s expectations to align with reality.
Do I Need to Pay Anything to the Mortgage Broker?
The best part is that if you have a good credit score, you won’t have to pay commissions to the broker.
This raises the question: How do these brokers get paid?
Well, their main source of income is commissions. The lenders usually pay the commission, which ranges from 0.5%-1.2% of the full mortgage amount. If borrowers have a bad credit score, they may have to pay a fee to compensate the broker for the extra work done to get the application through.
Plus, the good news is that there’s an extensive network of mortgage brokers in Ontario. Mortgage brokers in Ontario can conduct their brokering business only if licensed and regulated by the FSRA.
Now let’s shed light on interest rates for mortgages in Ontario.
Interest Rates for Mortgages in Ontario
Banks use the prime rate to set the target lending rate for mortgages. These rates are usually based on the overnight rate set by the Bank of Canada. These days, the overnight rate fluctuates around 4.5%, and banks generally follow their lead.
The rates you get can differ from the national lending rate because they’re based on several key factors.
Factors Influencing Interest Rates for Mortgages in Ontario
Some of the factors that influence rates include:
- Credit score: Your creditworthiness is the crucial factor that determines the rate you’ll get. If it’s high, you will likely secure a low rate and vice versa.
- Mortgage amount: If you’re borrowing a large amount, you’ll have less equity in your home, which will ultimately increase your rate.
- Fixed vs. Variable: A fixed-rate mortgage entitles you to make the same payments for the term of your mortgage. However, the variable rate can fluctuate with the market condition.
- Gross debt service (GDS) ratio: It’s the percentage of monthly income that covers housing costs. In most cases, it should be at most 39%. Similarly, Total Debt Service (TDS) is another ratio that covers housing costs plus any other debt and shouldn’t exceed 44%.
What Options Do I Have?
Now that you have a better understanding of the mortgage market in Ontario let’s discuss how you can find the best mortgages in Ontario. You have three options in Ontario to find suitable mortgages.:
The A-lenders consist of the major banks in Ontario that offer the best mortgage rates but have difficult qualification criteria. According to current situations, here are the rates for the five-year fixed mortgage you can get from the A-lenders in Ontario: (as of May 19th)
- CIBC: 4.94%
- RBC: 5.54%
- Scotiabank: 6.34%
- TD: 4:89%
- BMO: 4.99%
B-lenders consist of credit unions, mortgage investment corporations, and trust organizations. These lenders are slightly less strict on qualification criteria but still follow federal and provincial regulations.
The good news is that you might get a better rate with credit unions than with the major banks. According to the WOWA website, here are the rates for a 5-year mortgage of popular B-lenders in Ontario:
- Meridian Credit Union: 6.29%
- DUCA Financial Services Credit Union: 4.89%
- Alterna Savings and Credit Union: 4.74%
- First Ontario Credit Union: 4:89%
C-lenders are the usual private lenders who don’t focus much on credit scores. If you have good equity in your home and a stable income, they will be receptive to lend you – even more than 80% of the home’s value.
However, C-lenders may have higher mortgage rates. Some of the best C-lenders in Ontario are as follows:
- Sequence Capital
- Canadian Mortgages Inc.
- Community Trust
- Individual Investor
Second Mortgage Options
Perhaps you’re looking to get a second mortgage on your home. But let us remind you that if you were to default, you would need to pay off the first mortgage initially.
Moreover, you need a stellar credit score to qualify for one if you wish to get one from a major conventional bank. Let’s first look at the credit scores for mortgages in Ontario. Here are they:
Major Banks and B-lenders
B-lenders and Private Lenders
The usual requirements for a second mortgage are having a good credit score, a stable income, and equity in your home.
However, there’s a cost. Second mortgages often come at a higher interest rate ranging between 7-12%.
Moreover, to get the most competitive rates, you should ideally have enough income to cover your loan and an LTV below 65%.
The market is highly competitive in Ontario, and lenders are willing to offer reasonable rates to active home buyers.
So, whether you’re a first-time homebuyer looking for a mortgage or an existing homeowner looking for mortgage renewal, there are lots of options with favourable rates in Ontario – thanks to the extensive network of mortgage brokers and lenders.
Frequently Asked Questions (FAQs)
What is the best mortgage option?
There are four main types of mortgage options available:
- Repayment mortgage
- Interest-only mortgage
- Fixed-rate mortgage
- Tracker mortgage
For many individuals, a repayment mortgage is the best choice because it guarantees that you’re paying your debt and you’ll have no amount due at the end of the mortgage term.
How much is the deposit in Ontario?
There isn’t a set lawful requirement for real-estate deposits in Ontario, but the standard deposit is 5% of the home’s purchase price.
What is the minimum down payment in Ontario?