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How are mortgage rates determined?

Andrew Goldman

Andrew Goldman has been writing for over 20 years and investing for the past 10 years. He currently writes about personal finance and investing for Wealthsimple. Andrew's past work has been published in The New York Times Magazine, Bloomberg Businessweek, New York Magazine and Wired. Television appearances include NBC's Today show as well as Fox News. Andrew holds a Bachelor of Arts (English) from the University of Texas. He and his wife Robin live in Westport, Connecticut with their two boys and a Bedlington terrier. In his spare time, he hosts “The Originals" podcast.

Mortgage rates can refer to one of two things — how much interest you are personally charged to borrow money to buy a house, or the overall rising and falling of rates nationwide in response to various economic factors. How much you are personally charged depends on both your income history and how well you’ve managed your credit history in the eyes of credit reporting agencies like Equifax.

If you make decent money and have a good credit score — 650 and up is considered solid — you’ll likely be able to secure a relatively low-interest mortgage from a traditional source like a name brand bank. If your earning history is a bit spottier and you’ve accumulated some bad credit karma through late or non-payment on credit cards, you may be frozen out of the traditional banks and be forced to seek a mortgage from more forgiving lenders, called sub-prime lenders (also called “B” or alternative, non-conforming lenders).

You may have heard of Home Capital Group, which is Canada's largest non-prime mortgage lender. Sub prime lenders like these aren’t giving money to less qualified candidates out of a sense of kindness or social responsibility; they’re in it for the money, and will tack on a premium of as much as 3 percentage points onto the interest rates for mortgages for those who are deemed more likely to default. The overall rising or falling of Canadian mortgage rates is largely dependent on the accessibility of money for banks to lend — something that is directly affected by the actions of the Bank of Canada through their manipulation of the country’s benchmark interest rate, called the key policy interest rate.

Last Updated March 6, 2018

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