Interest Rates 101
No matter which province or territory you reside in, finding the best mortgage rate
can save you thousands of dollars. Obviously, there are not many people who can
purchase property without taking out a home loan. Taking out a home loan lets you
buy, live in and/or use a home without needing to come up with the full dollar amount
at the time of purchase. Usually the amount of the loan is equal to the majority
of the home’s worth, but the downfall of this is that you will be required to pay
interest on the loan. Most lenders insist on a down payment, i.e., a payment equal
to a portion of the property’s worth. For instance, if a home is worth $200,000
and the buyer would need to make a down payment of 10%. This would equal a $20,000
down payment ($200,000 x 10%). To make up the balance, the lender would loan you
$180,000 ($200,000 minus the $20,000 down payment).
When you are dealing with interest rates on large amounts of money even a variance
in interest rates as small as an eight of a percent can make a significant difference
in the amount you will be required to repay. Typically the interest is also calculated
over long periods of time, which puts even more emphasis on securing the best rate
possible. To make things more complicated there are also different rate and mortgage
rates. This can make it difficult to determine whether you are comparing apples
to apples or apples to oranges.
Interest rates can vary widely even from day to day so locking in on the best rate
is extremely important. One of the easiest ways to do this is to enlist the help
of a mortgage broker who can act as an entry way to a variety of lending institutions
– banks, credit unions, etc… A mortgage broker can shop around for you, which make
them a great resource for finding the right rate and mortgage options.
A potential buyer also needs to understand how much is a reasonable amount to borrow
as well as the implications of payment frequency.
