Lisette Amalfi
Greater Golden Horseshoe
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How Mortgage Rates Are Determined In Canada: Fixed vs. Variable
March 14, 2025
How Mortgage Rates Are Determined in Canada
In Canada, mortgage rates are set based on two distinct financial mechanisms: variable rates follow the Bank of Canada’s overnight rate, while fixed rates are influenced by the bond market. Because they rely on different factors, they do not always move in sync. Additionally, banks react to changes in these rates at different speeds, often prioritizing profitability and risk management over immediate adjustments.
How Variable Rates Are Determined
Variable mortgage rates are directly tied to the lender’s prime rate, which in turn is influenced by the Bank of Canada’s overnight rate.
Determination Process
- The Bank of Canada (BoC) Sets the Overnight Rate
- The BoC meets eight times per year to assess economic conditions and adjust the overnight lending rate.
- If inflation is high, the BoC raises rates to slow borrowing and spending.
- If the economy is struggling, the BoC lowers rates to encourage borrowing and investment.
- Banks Adjust Their Prime Rate
- Most major Canadian banks set their prime rate at about 2% above the BoC’s overnight rate.
- If the BoC increases the overnight rate, banks usually increase their prime rate accordingly.
- Lenders Price Variable Mortgage Rates
- A variable mortgage rate is typically set as Prime - Discount.
- Example: If the prime rate is 6.95% and a lender offers a discount of 1.00%, the borrower’s variable mortgage rate would be 5.95%.
Bank Response to Variable Rate Changes
✔ Quick Response (Within Hours or Days)
- Banks almost always adjust their prime rate within a day or two of a BoC rate change.
- Example: If the BoC lowers its rate by 0.25%, banks usually lower their prime rate by 0.25% as well.
✔ Exceptions: Delayed or Partial Response
- Banks don’t always pass on the full BoC rate cut to borrowers.
- Example: The BoC cuts rates by 0.25%, but a bank only lowers its prime rate by 0.15% to protect its profit margin.
How Fixed Rates Are Determined
Fixed mortgage rates are influenced by the bond market, specifically the yields on Government of Canada bonds.
Determination Process
- Government of Canada Bonds Set the Benchmark
- Lenders fund fixed-rate mortgages by purchasing bonds.
- The most relevant bond for fixed-rate mortgages is the 5-year Government of Canada bond.
- When bond yields rise, lenders raise fixed mortgage rates.
- When bond yields fall, lenders lower fixed mortgage rates—but not always right away.
- Banks Add a Risk Premium
- Lenders don’t just use the bond yield as their mortgage rate; they add a spread to ensure profitability.
- Example: If the 5-year bond yield is 3.00%, a lender might price a 5-year fixed mortgage at 4.50%.
Bank Response to Fixed Rate Changes
✔ Fast Response (Same Day to a Few Days)
- When bond yields rise quickly, banks increase fixed mortgage rates almost immediately to protect profit margins.
- Example: If bond yields jump 0.30% in one day, banks may increase fixed mortgage rates the next day.
✔ Slow or No Response
- When bond yields drop, banks often delay lowering fixed rates to maximize profits.
- Example: If bond yields fall 0.25%, banks might wait weeks or even months before reducing fixed mortgage rates.
✔ Strategic Adjustments
- Banks monitor competitor pricing before lowering rates.
- If mortgage demand is strong, banks may keep rates higher even if bond yields drop.
Factor | Variable Rate (Prime-Based) | Fixed Rate (Bond Market-Based) |
Influenced By | BoC Overnight Rate | 5-Year Government Bond Yields |
Changes When… | BoC raises or lowers interest rates | Bond investors expect higher or lower inflation |
Moves in Lockstep with BoC? | Yes, since prime rate follows BoC | No, because bond yields respond to global market conditions |
Reaction Speed | Usually immediate or within a few days | Can take weeks to months |
Passes on Full Changes? | Often, but not always | Rarely drops as fast as bond yields |
March 2024 – Slow Drop in Fixed Rates
• 5-year bond yield dropped from 3.50% to 2.80% over two months.
• Some lenders kept fixed mortgage rates high for weeks, even though their borrowing costs decreased. • Banks only lowered rates gradually to maintain higher profit margins.
July 2023 – Fast Rise in Fixed Rates
• Inflation concerns led to a sharp increase in 5-year bond yields.
• Major lenders increased their fixed mortgage rates within days, even though bond yields hadn’t settled.
Key Takeaways
- Variable rates adjust quickly based on Bank of Canada rate changes, usually within days.
- Fixed rates follow bond market trends, but banks are often slow to lower them when bond yields fall.
- Banks prioritize profitability and competition, which means they don’t always pass on savings to borrowers immediately.
What Is a Home Inspection and Why Is It Important?
March 13, 2025
A home inspection is a thorough evaluation of a property’s condition by a certified home inspector. It typically takes place after an offer is accepted and before finalizing the purchase. The goal is to uncover potential issues, helping buyers make informed decisions about their investment.
As a mortgage broker with over 20 years of experience serving clients in Hamilton, Ancaster, and across Ontario, I always recommend a home inspection to protect your investment and ensure peace of mind.
Why You Should Include a Home Inspection Condition
When making an offer on a home, you have the option to include a home inspection condition. This clause gives you the ability to back out of the purchase or negotiate repairs if significant issues are discovered during the inspection.
Benefits of an Inspection Condition:
✅ Ensures you fully understand the property’s condition before committing.
✅ Allows room for negotiations if major repairs are needed.
✅ Helps avoid costly surprises after closing.
In competitive markets, some buyers feel pressured to waive this condition, but skipping an inspection can lead to unexpected expenses down the road.
Can You Still Get a Home Inspection After Buying?
Yes! If you’ve already purchased a home without an inspection condition, you can still arrange for one. However, your options may be limited:
🔹 Post-Purchase Inspection: This can help you identify any urgent repairs or safety concerns, even though you won’t have the option to renegotiate the purchase price.
🔹 Home Warranty or Protection Plans: If your home has significant issues, some warranty programs or insurance policies may offer coverage for unforeseen repairs.
🔹 Budgeting for Repairs: Knowing what to expect allows you to plan for maintenance and renovations accordingly.
What Does a Home Inspection Cover?
A professional home inspector will assess key areas of the home, including:
🏠 Structural Integrity – Foundation, walls, roof, and overall stability.
🚰 Plumbing Systems – Water pressure, drainage, leaks, and pipe conditions.
⚡ Electrical Systems – Wiring, outlets, breaker panels, and safety compliance.
🔥 HVAC Systems – Heating, cooling, and ventilation efficiency.
🚪 Windows & Doors – Seals, drafts, and overall condition.
💧 Moisture & Mold Issues – Signs of water damage or leaks.
After the inspection, you’ll receive a report outlining any concerns, from minor repairs to major red flags.
Need Mortgage Advice? Let’s Chat!
A home inspection is a critical step in the homebuying process, whether it’s before or after purchase. If you need guidance on financing options, renovation loans, or planning for unexpected costs, I’m here to help!
📞 Call: 905-929-1199 📧 Email: lamalfi@tmacc.com
Let’s ensure you’re making the best financial decisions for your home!
What Happens If You Need to Break Your Mortgage Term Early?
March 10, 2025
Breaking your mortgage term early is more common than you might think. Whether you're moving, refinancing, or dealing with an unexpected life change, ending your mortgage contract before it expires can come with costs—but there are ways to navigate them.
As a mortgage broker with over 23 years of experience helping homeowners in Hamilton, Ancaster, and across Ontario, I’ve guided many clients through this process. My goal is to help you understand what to expect, explore ways to reduce penalties, and find the best solution for your situation.
What Does Breaking a Mortgage Term Mean?
Breaking a mortgage means ending your current mortgage contract before the agreed-upon term is up. This can involve:
- Paying Off the Balance – This is often done through selling your home or refinancing.
- Penalty Fees – Lenders typically charge a prepayment penalty, and there may be additional fees involved.
Why Might You Need to Break Your Mortgage?
In my experience, clients usually break their mortgage for one of these reasons:
- Moving to a New Home – Whether for work, family, or lifestyle changes, a home sale means closing out your current mortgage.
- Refinancing for a Better Rate – If mortgage rates drop, breaking your current mortgage to secure a lower rate could save you thousands in interest.
- Life Changes – Divorce, separation, or other financial adjustments might require a new mortgage setup.
- Debt Consolidation or Accessing Equity – Some homeowners refinance to pay off high-interest debt or fund major expenses.
What Are the Costs of Breaking a Mortgage?
1. Prepayment Penalty
The biggest cost is usually the penalty for breaking your mortgage early. The calculation depends on whether you have a fixed-rate or variable-rate mortgage.
For Fixed-Rate Mortgages:
- The penalty is either 3 months' interest or the Interest Rate Differential (IRD)—whichever is higher.
- The IRD Calculation: This takes the difference between your current rate and what the lender could charge a new borrower for your remaining term. Some lenders use posted rates, while others use discounted rates—so penalties can vary significantly.
- Key Takeaway: Fixed-rate mortgages tend to have higher penalties than variable-rate ones.
For Variable-Rate Mortgages:
- The penalty is typically just 3 months’ interest on the remaining balance.
- Example: If you owe $300,000 at 2.5% interest, your penalty would be about $1,875.
2. Other Fees to Expect
- Mortgage Discharge Fee: $200–$400 (varies by lender).
- Legal Fees: If refinancing, legal costs typically range from $800–$2,000.
- Reinvestment Fees: Some lenders charge extra if they need to reinvest the mortgage funds early.
Can You Reduce or Avoid These Penalties?
Absolutely! In many cases, we can explore options to reduce or even eliminate penalties:
✅ Porting Your Mortgage – If you're buying a new home, you might be able to transfer your existing mortgage to the new property and avoid penalties.
✅ Blending & Extending – Some lenders allow you to combine your current rate with their new rate, spreading the cost over a longer term.
✅ Timing the Break Strategically – If your term is close to ending, waiting until renewal could save you thousands.
✅ Refinancing with the Same Lender – Some lenders will reduce or waive penalties if you stay with them.
Every lender has different policies, so this is where I come in—I’ll review your mortgage details and help you determine the best course of action.
How I Can Help
If you’re considering breaking your mortgage, you don’t have to navigate this alone! Here’s how I can help:
✔️ Penalty Calculations – I’ll break down the numbers so you know exactly what to expect.
✔️ Exploring Alternatives – I’ll help you look at porting, blending, or other penalty-reducing options.
✔️ Comparing Lenders – If a switch makes sense, I’ll find you the best rates and terms to offset costs.
✔️ Negotiating for You – I work directly with lenders to see if we can lower or eliminate penalties.
Final Thoughts
Breaking a mortgage term early can feel overwhelming, but with the right approach, you may be able to reduce costs and take advantage of better opportunities. If you're thinking about breaking your mortgage, let’s chat! I’ll walk you through your options and help you find the best financial path forward.
📞 Call or text me at 905-929-1199 📧 Email me at lamalfi@tmacc.com
I’m here to help you make the best decision for your situation!
10 Things to Do After Mortgage Approval to Ensure a Smooth Closing
March 05, 2025
Congratulations! Getting your mortgage approved is a huge milestone in your homebuying journey. But before you celebrate, there are still important steps to take to ensure a smooth closing process.
As a mortgage broker with 23+ years of experience helping homebuyers in Hamilton, Ancaster, and across Ontario, I’ve guided many clients through this crucial period. Here’s how to stay on track from approval to closing day.
1. Avoid Major Financial Changes 🚨
Your lender approved your mortgage based on your current financial situation. Any changes could put your approval at risk.
✔ Hold off on major purchases like a new car, furniture, or vacations—large expenses can impact your credit score and debt-to-income ratio.
✔ Don’t apply for new credit cards or loans. Even a small inquiry on your credit report can cause delays.
✔ Stay at your current job. A sudden career change could affect your mortgage approval.
2. Stick to Your Budget 💰
It’s tempting to start spending on home upgrades, but staying within budget is key.
🔹 Closing Costs: Set aside 1.5%–4% of the home price for legal fees, land transfer tax, title insurance, and other expenses.
🔹 Moving Expenses: Whether hiring movers or renting a truck, factor these costs into your budget.
3. Review Your Mortgage Commitment Letter 📜
Your mortgage commitment letter outlines your loan details. Double-check:
✅ Interest rate & term – Ensure it aligns with what you expected.
✅ Conditions before closing – Some lenders require proof of home insurance, updated pay stubs, or additional documents.
✅ Prepayment options – If you plan to make extra payments, check if there are penalties.
Need clarification? I’m happy to walk you through the details.
4. Meet All Conditions on Time ⏳
Your mortgage approval may come with conditions that must be met before the lender releases the funds. These may include:
✔ Proof of home insurance.
✔ Final purchase agreement.
✔ Updated financial documents (e.g., pay stubs, tax returns).
✔ Property appraisal or home inspection results (if required).
How I Can Help: I’ll ensure all paperwork is submitted on time, so your closing stays on track.
5. Avoid Large Cash Deposits Without Documentation 🏦
If you receive or deposit a large sum of money before closing, be prepared to explain where it came from.
✅ Acceptable sources include:
- Savings or investments
- Gifted funds (must be documented with a gift letter)
- Sale of an asset (provide receipts or proof of sale)
6. Arrange for Home Insurance 🏠
Lenders require home insurance before closing. Shop around for the best rates and ensure your policy meets lender requirements.
🔹 Pro Tip: If your new home is in a flood-prone or high-risk area, double-check coverage details.
7. Plan Your Final Walkthrough 🔎
A final walkthrough (if included in your contract) ensures the property is in the expected condition before closing.
✔ Confirm that all agreed-upon repairs have been completed. ✔ Check for any damage or missing appliances.
✔ Test electrical, plumbing, and heating/cooling systems.
8. Work Closely with Your Lawyer ⚖️
Your real estate lawyer handles key closing tasks, including:
🔹 Title search – Ensures no outstanding liens on the property.
🔹 Property registration – Legally transfers ownership to you.
🔹 Handling funds – Manages down payments, closing costs, and lender disbursements.
What You Need to Do:
✔ Provide funds for the down payment & closing costs.
✔ Review and sign final legal documents.
9. Monitor Your Credit and Financial Activity 📉
Even after approval, your lender may perform a final credit check before releasing funds.
✔ Keep making all payments on time.
✔ Maintain a consistent balance in your accounts.
✔ Avoid overdrafts or missed bill payments.
10. Stay in Touch with Your Mortgage Broker 📞
If anything changes in your finances, let me know ASAP. Addressing potential issues early can prevent closing delays.
Final Thoughts 💡
The period between mortgage approval and closing is critical. By staying financially stable, meeting all lender requirements, and keeping an open line of communication, you can ensure a stress-free closing.
Need guidance? I’m here to help every step of the way. Let’s make sure everything goes smoothly so you can focus on moving into your new home!
📧 Email: lamalfi@tmacc.com 📞 Call: 905-929-1199
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