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What did you learn about the topic that most surprised you?

This topic was interesting because it allowed me to further grasp how our economy works. I learned how mortgages work and how complex they truly are. What truly surprised me was the incredible balancing act our government works on to keep our country afloat.

2. Provide a real-life example of how this topic is relevant or interesting for you?

This topic is relevant to me because I wish to own a house in the future and I will need to, just like most people apply for a mortgage. I currently am saving a decent amount of money that is being put to the side so one day I can hopefully make a down payment on my house and mortgage.

3. If you could pass on your knowledge to a family member or friend, what do you think is the most important thing to pass on?

I would share with my family/friends how easy it is to understand how mortgages work. By simply ready some articles and watching videos have have greatly expanded my knowledge on this subject and I will have less questions when I eventually go to apply for a mortgage. So if I share this information my family/friends will have an easier time as well.

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This image to me represents the growing house costs as inflation rises at an alarming rate. It to me represents the increasingly impossible dream of owning a home in this day and age.

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This image to me illustrates how a mortgage can you down from the freedoms of owning your own house. Although necessary, mortgages are a pain for every homeowner.

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Video #4 How Do Inflation Rates Work, and How are They Determined

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Video #4 How Do Inflation Rates Work, and How are They Determined

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In this video uploaded by "The Plain Bagel" interest rates are explained. He goes into depth on how the policy rate is changed based on how the economy is performing. He gives an example of how when the economy is growing people have more money to spend on mortgages for example, and when people have more money to spend the bank needs to loan more money from the Bank of Canada. If more people can afford loans the bank has to create more money which in turn lowers the value of the Canadian dollar and creates inflation. The Bank of Canada aims for an inflation rate of 2% in order to maintain a healthy economy. If the policy rate is increased so do interest rates which allow the dollar to be worth more to combat inflation.

I chose this video because it gives a great explanation of our economy and how loaning works. It has many examples and graphics that are easy to follow along with. I like how this video specifically went into depth on the policy rate and how the Bank of Canada controls the economy and keeps it healthy,

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Video #3 Mortgages Rates and How Inflation Interacts

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Video #3 Mortgages Rates and How Inflation Interacts

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In this video, the uploader "CNET Money" goes into depth on how mortgage payments work. By using examples Vincent, who made this video describes how inflation interacts with mortgage rates. He goes into depth with an example of how you can actually spend less percent of your income on your mortgage by the end of your term. In his example, if you receive a wage increase from your work that is equal to or more than the inflation rate. Then at the end of your typical 5-year term, you are paying less percentage of your income towards your mortgage as the rate has not changed if you are using a fixed rate. This goes to show how much needs to be calculated as there is a constant battle between your finances, inflation, and your mortgage.

I chose this video because it allows you to take a more in-depth look at how mortgage rates are constantly battling inflation. I like how this video specifically mentions ways you can "beat the system" by paying at different times are riding inflation waves.

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Video #2 The Basics of Mortgages With In Depth Examples

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Video #2 The Basics of Mortgages With In Depth Examples

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This is another video explaining what a mortgage is and how it works. Here real-world examples are used and companies are shown the viewer to help identify what real-world companies represent different titles such as "Bank", and "Mortgage Broker".  In this video, a lot of information is presented in a short with a high production quality that allows you to remain engaged in the video and helps you understand each aspect of a mortgage. This video specifically points out how with each monthly or other agreed-upon term payment is complete the banks own less and less stake in the house. It illustrates how you slowly begin to own your house.

I like this video because as I mentioned it presents a lot of valuable information in a presentable matter in a timely fashion. I like how this video specifically gives an example of "Jen and Chris" and presents the logistics of how to obtain a mortgage.

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Video #1 The Basics of Canadian Mortgages

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Video #1 The Basics of Canadian Mortgages

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In this video, the video creator by the name of Nolan Matthias explains how the mortgage system in Canada works. Throughout the video, he gives real-life examples and numbers for each topic within the video. He also provides graphical pop-ups that have extra definitions in them so you don't miss any details or get lost while watching his video. What he mentions that hasn't been mentioned yet is how if you are paying less than a 20% down payment on your mortgage you will need mortgage insurance. The mortgage insurance protects the bank in case the person loaning defaults. This means that one or more of the terms of the mortgage agreement were violated.

I chose this video because it covers everything you need to know about mortgages and is a great watch for first-time loaners. I like how this website mentions mortgage insurance when you are unable to pay 20% down on your home.

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Canada Mortgage: Learn The Basics - MORTGAGE 101 UPDATED FOR 2021

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Website #3 What Important Factors Can Affect Mortgage Rates

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Website #3 What Important Factors Can Affect Mortgage Rates

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This website really puts emphasis on how interest rates are tied to the basic rules of supply and demand. It digs deeper into how every aspect of our economy has an effect on mortgage rates. This article also gives perspective as it introduces the reader to the bank's point of view. It discusses how banks need to make a profit so they have to adjust the mortgage rates to do so. They need to have their rates set at a certain percentage in order to combat inflation. For example, if inflation is 2% a year and your interest rate is 2% per year then the banks will make no profit as you are only matching the inflation rate. So banks must choose higher or lower percentages based on inflation rates in order to turn a profit but also offer a competitive rate.

I like how this article describes why interest rates are affected by inflation. It describes how the banks need to set certain rates to ensure a profit. This website point allowed me to look further into the bank's or loaner's point of veiw.

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Mortgage interest rates have a significant impact on the overall long-term cost of purchasing a home through financing. On the one hand, mortgage borrowers seek the lowest possible mortgage interest rates. On the other hand, mortgage lenders must manage their risk through the interest rates they charge. The lowest mortgage interest rates are only available to borrowers with the most stellar credit histories.

While the financial health of borrowers affects the interest rate they will be offered on a loan, economic factors and government monetary policy affect the whole mortgage rate universe. There are five major factors at play, and all of them reflect the basic rules of supply and demand in one form or another. Some of the underlying factors are complex, but understanding these principles explains the interest rates you are paying now and what could be coming in the future.

The gradual upward movement of prices due to inflation is a reflection of the overall economy and a critical factor for mortgage lenders. Inflation erodes the purchasing power of dollars over time. Mortgage lenders generally have to maintain interest rates at a level that is at least sufficient to overcome the erosion of purchasing power through inflation to ensure that their interest returns represent a real net profit.

For example, if mortgage rates are at 5% but the level of annual inflation is at 2%, the real return on a loan in terms of the purchasing power of the dollars the lender gets back is only 3%. Therefore, mortgage lenders carefully monitor the rate of inflation and adjust rates accordingly.

The Rate of Economic Growth

Economic growth indicators, such as gross domestic product (GDP) and the employment rate, influence mortgage rates. With economic growth comes higher wages and greater consumer spending, including consumers seeking mortgage loans for home purchases. That's good for a country's economy, but the upswing in the overall demand for mortgages tends to propel mortgage rates higher. The reason: lenders only have so much capital to lend.

In a slowing economy, the opposite occurs. Employment and wages decline, leading to decreased demand for home loans, which puts downward pressure on the interest rates offered by mortgage lenders.

Federal Reserve Monetary Policy

The monetary policy pursued by the Federal Reserve Bank is one of the most important factors influencing both the economy generally and interest rates specifically, including mortgage rates.

The Federal Reserve does not set the specific interest rates in the mortgage market. However, its actions in establishing the Fed Funds rate and adjusting the money supply upward or downward have a significant impact on the interest rates available to the borrowing public.﻿﻿ Generally, increases in the money supply put downward pressure on rates while tightening the money supply pushes rates upward.

The Bond Market

Banks and investment firms market mortgage-backed securities (MBSs) as investment products. The yields available from these debt securities must be sufficiently high to attract buyers.

Part of this equation is the fact that government bonds and corporate bonds offer competing long-term fixed-income investments. The money you can earn on these competing investment products affects the yields the MBSs offer. The overall condition of the larger bond market indirectly affects how much lenders charge for mortgages. Lenders have to generate sufficient yields for MBSs to make them competitive in the total debt security market.﻿﻿

One frequently used government-bond benchmark to which mortgage lenders often peg their interest rates is the 10-Year Treasury bond yield. Typically, MBS sellers must offer higher yields because repayment is not 100% guaranteed as it is with government bonds.

Housing Market Conditions

Trends and conditions in the housing market also affect mortgage rates. When fewer homes are being built or offered for resale, the decline in home purchasing leads to a decline in the demand for mortgages and pushes interest rates downward.

A recent trend that has also applied downward pressure to rates is an increasing number of consumers opting to rent rather than buy a home. Such changes in the availability of homes and consumer demand affect the levels at which mortgage lenders set loan rates.

The Bottom Line

Mortgage rates are tied to the basic rules of supply and demand. Factors such as inflation, economic growth, the Fed's monetary policy, and the state of the bond and housing markets all come into play. Of course, a borrower's financial health will also affect the interest rate they receive, so do your best to keep your's as healthy as possible.

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The Most Important Factors That Affect Mortgage Rates

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How inflation, economic growth, Federal Reserve activity, and the housing market affect mortgage rates.

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Lastly, I thought I'd include a mortgage calculation tool from the Royal Canadian Bank, (RBC). When typing in the amount of the loan you are looking to receive into the calculator you are given a wide amount of information. For example, when typing $1,000,000 into the calculator it gives me an example of what my interest rate might be. In this case, I would be loaned at a interest rate of 2.940%, with an amortization (or time period) of 25 years. In total by the time I would pay my loan off I would have paid $410,000 in interest. This however is a variable that can change depending on if your rate is a variable rate or a fixed rate. It can also change if you pay more on each mortage payment or even if you pay more frequently.

I chose this website as I mentioned to allow for someone learning about mortgages to see an example of how one might come about. I like how this website is a real-world example from a real company that allows you to get as close as you can get to applying for a loan without actually doing so.

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View Our Rates

The charts below show current purchase and switch special offers and posted rates for fixed and variable rate mortgages, as well as the Royal Bank of Canada prime rate.

Popular Rates

Fixed and Variable Closed

Here are current popular purchase and switch rates for select fixed and variable rate closed term mortgages:

Term

Special Offers

APR

2 Year Fixed

2.490%

2.550%

5 Year Fixed

2.940%

2.970%

5 Year Variable

RBC Prime Rate - 0.850% (1.600%)

1.630%

Mortgage Payment Calculator

Quickly See What Your Mortgage Payments Might Look Like

Other Rates

Special Rates for Purchase and Switch Transactions

Posted Rates

25 Year Amortization or Less

Greater Than 25 Year Amortization

25 Year Amortization or Less

Greater Than 25 Year Amortization

Today's Royal Bank of Canada Prime Rate:

Term

Posted Rates

RBC Prime Rate

2.450%

Lock in Your Rate Today

Connect with an RBC Mortgage Specialist to find the mortgage that is right for you, and lock-in your rates for 120 days.

View Legal Disclaimers Hide Legal Disclaimers

Funds must be advanced within 120 days of date of application. Offer may be changed, withdrawn or extended at any time, without notice.

Personal lending products and residential mortgages are offered by Royal Bank of Canada and are subject to its standard lending criteria. Some conditions apply. Special Offers are discounted rates and are not the posted rates of Royal Bank of Canada. Specials Offers may be changed, withdrawn or extended at any time, without notice.

Interest rate compounded half-yearly, not in advance. Interest rates are subject to change without notice at any time.

The annual percentage rate (APR) is based on a $ 250,000 mortgage for the applicable term assuming a processing fee of $300 (which includes fees associated with determining the value of the property). If there are no cost of borrowing charges, the APR and the interest rate will be the same.

Interest rate is compounded monthly, not in advance. This rate may change at any time without notice. Royal Bank of Canada prime rate is an annual variable rate of interest announced by Royal Bank of Canada from time to time as its prime rate.

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The charts below show current purchase and switch special offers and posted rates for fixed and variable rate mortgages, as well as the Royal Bank of Canada prime rate.

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Website #2 Canadian Government Information On Canadian Interest Rates

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Website #2 Canadian Government Information On Canadian Interest Rates

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This website created by the government is a very useful tool for identifying how interest rates work and what different type of rates you can apply for. For example on the website it describes the difference between variable interest rates and fixed interest rates. A fixed interest rate is a rate the remains the same and constant over time. In contrast a variable interest rate can increase or decrease during your set term. If you choose a variable rate your rate could be lower than a fixed rate but it also has the chance to fluctuate with the economy to a much higher rate. It is best to live within your means when apply for a loan and to choose the best rate for you.

I chose to present this website because it is straight from the government of Canada ensuring it is correct information presented in an easy-to-understand fashion. I like how this website mentions the different types of rates and goes into depth on the benefits of either or.

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What is interest

Interest is the fee you pay your lender for the use of their money.

When you apply for a mortgage, your lender may offer different interest rate options. The interest rate is used to calculate how much you need to pay to borrow money. These rates rise and fall over time.

Every time you renew your mortgage term, you renegotiate your mortgage interest rate. This means your mortgage payments could be higher or lower in the future.
Find out more about mortgage terms and amortization.
How your lender sets your interest rate

Lenders set the interest rate for your mortgage. They consider factors to help them determine your cost.

These factors can include:

the length of your mortgage term

their current prime and posted interest rate

if you qualify for a discounted interest rate

the type of interest you choose (fixed, variable or a combination)

your credit history

if you're self-employed

Lenders typically offer higher interest rates when the term length is longer. It's not always the case.

Prime interest rates

The prime interest rate is the rate lenders use to set their posted interest rate. The rates can change regularly.

Your lender may offer you an interest rate of prime plus a percent. This is often the case with a variable rate mortgage.

For example, your lender can offer you a rate of prime plus 1%. This means your interest rate is 1% higher than the listed prime amount. If the prime rate is 3.5%, your rate is 4.5% or 3.5% + 1%. If the prime rate increases to 3.7%, your rate increases to 4.7% or 3.7% + 1%.

Posted interest rates

The posted interest rate is the rate lenders advertise for their products. For example, these are the rate you see on your lender's website. These rates can change regularly.
Learn more about interest rates posted by banks on the Bank of Canada's website.
Discounted rates

A discounted rate is lower than the lender's posted rates. Ask your lender if they can offer you a discounted rate. This could save you thousands of dollars.

How much interest can cost

Your interest rate and how it's calculated affects your regular mortgage payments. A mortgage is usually a large amount of money. Therefore, small differences in the interest rate can have a significant impact on your costs.
Figure 1: Example of monthly mortgage payment for a mortgage of $300,000.00 with an amortization of 25 years at various interest rates

Make sure your home is within your budget. Consider if you're comfortable with the possibility of interest rates increasing. Determine if your budget could handle higher payments. If not, you may be overextending yourself.
Use the Mortgage Calculator Tool to estimate your payments.
How your credit rating affects your interest rate

Lenders look at your credit report and credit score to decide if they will lend you money. They also use them to determine how much interest they will charge you to borrow money.

If you have no credit history or a poor credit history, it could be harder for you to get a mortgage. If you have good credit history, you may be able to get a lower interest rate on your mortgage. This can save you a lot of money over time.
Learn more about credit reports and credit scores.
Fixed interest rate mortgage

Fixed interest rates stay the same for your entire term. They are usually higher than variable interest rates.

A fixed interest rate mortgage may be better for you if you want to:

keep your payments the same over the term of your mortgage

know in advance how much principal you'll pay by the end of your term

keep your interest rate the same because you think market interest rates will go up

Variable interest rate mortgage

A variable interest rate can increase and decrease during your term. If you choose a variable interest rate, your rate may be lower than if you selected a fixed rate.

The rise and fall of interest rates are difficult to predict. Consider how much of an increase in mortgage payments you'd be able to afford if interest rates rise. Note that between 2005 and 2015, interest rates varied from 0.5% to 4.75%.

Consider if you're comfortable with the possibility of interest rates increasing. Determine if your budget could handle higher payments. If not, a fixed interest rate mortgage may be better for you. You may also consider fixed payments with a variable interest rate.

A variable interest rate mortgage may be better for you if you're comfortable with:

your interest rate changing

your mortgage payments potentially changing

the need to follow interest rates closely if your mortgage has a convertibility option

Get information on current interest rates from the Bank of Canada or your lender's website.

Fixed payments with a variable interest rate

If the interest rate goes up, more of your payment goes towards the interest, and less to the principal.

If the interest rate goes down, more of your payment goes towards to the principal. This means, you pay off your mortgage faster.

If the market interest rates increase to a certain percentage or trigger point, your lender may increase your payments. This payment increase will make sure that you pay off your mortgage by the end of the amortization period. The trigger point is listed in your mortgage contract.

Adjustable payments with a variable interest rate

With adjustable payments, the amount of your payment changes if the interest rate changes. A set amount of each payment applies to the principal. The interest portion changes as the interest rates change. You'll know in advance how much of the principal you'll have paid at the end of the term.

What you can do to protect yourself if interest rates rise

If the interest rate rises, your payments increase. Make sure that you can adjust your budget in case your payments increase.

Ask your lender if they offer:

an interest rate cap: a maximum interest rate your lender can charge on a mortgage. You never have to pay more in interest than the maximum cap, even if the interest rates rise

a convertibility feature: where, at any time during your term, you can convert or change your mortgage to a fixed interest rate

Note that if you choose a convertibility feature and change your mortgage to a fixed interest rate:

you usually have to pay a fee

certain conditions may apply

your new fixed interest rate may be higher than the variable interest rate you've been paying

Learn more about protecting yourself if interest rates rise.
Hybrid or combination mortgages

You could choose to opt for a hybrid or combination mortgage. In these mortgages, part of your interest rate is fixed and the other is variable.

The fixed portion gives you partial protection in case interest rates go up. The variable portion provides partial benefits if rates fall.

Each portion may have different terms. This means hybrid mortgages may be harder to transfer to another lender.

Related links

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mortgage; mortgage basics; fixed; variable; interest rate; standard mortgage; collateral; portable; assumable; title insurance

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Interest is the fee you pay your lender for the use of their money. When you apply for a mortgage, your lender may offer different interest rate options. The interest rate is used to calculate how much you need to pay to borrow money. These rates rise and fall over time.

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Website #1 Break Down of What a Mortgage Rate Is.

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Website #1 Break Down of What a Mortgage Rate Is.

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This website describes how mortgage rates are agreed upon and how they are paid. It also goes into depth into how our economy affect our interest rates. When the economy is growing the interest rates rise and when the econonmy is in a decline the interest rates fall. This is because of supply and demand, when a economy is growing more people and businesses want loans from the bank so the interest rates rise as the demand for loans rise as well. It also describes what you should expect when applying for a loan and what can affect your credit score.

I chose this article because I believe it is the perfect introduction to mortgage rates and how everything around them works. I found it very interesting how this article broke down how mortgage rates work and how banks are even able to lend money which isn't described on other websites.

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Here's what determines the interest rate on your mortgage-and why that rate can go up and down.

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A mortgage rate is the rate of interest charged on a mortgage, and a mortgage is "a legal agreement by which a bank or other creditor lends money at interest, and interest is ("money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt."). This is in exchange for taking title of the debtor's property, with the condition that the conveyance of title becomes void upon the payment of the debt."

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Here you will be able to learn about Mortgage Rates and how mortgage rates can be affected by inflation and the economy in general.

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Here you will be able to learn about Mortgage Rates and how mortgage rates can be affected by inflation and the economy in general.