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How FTHBs can get the best mortgage rates in Sault Ste Marie

What you need to know to make the best mortgage decisions
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Buying your first home in Ontario can be exciting but challenging, especially if you’re unfamiliar with how mortgages work or the steps involved in the homebuying process. With housing prices among the highest in Canada, understanding your options for financial assistance and knowing how to secure the best mortgage rates is essential.

This guide breaks down everything you need to know, from Ontario-specific programs to tips for improving your mortgage terms and conditions, all explained simply to help you make confident decisions.

Mortgages and Mortgage Rates

A mortgage is a type of loan specifically used to purchase a home. With interest added, it is usually repaid over a long period, such as 20, 25 or 30 years. The lender—typically a bank or mortgage provider—holds the home as collateral, meaning that if you don’t make your payments, the lender can take possession of the property.

When you can’t make your scheduled payments, it’s known as defaulting, so lenders may require you to purchase mortgage default insurance to lower their risk of lending you money. For this reduced risk, lenders will offer better discounts on your insurable mortgage rates

Mortgage rates are the interest rates on your mortgage that determine how much you’ll pay in interest over the life of your loan. Think of interest rates as fees charged by the lender to lend you, the borrower, money over a set period - usually expressed for each year.

Ontario Land Transfer Tax

Homebuyers must pay a land transfer tax in Ontario when purchasing a home. The amount you owe depends on the property's purchase price and is calculated using a tiered system:

  • For the first $55,000 purchase price, the tax rate is 0.5%.
  • From $55,001 to $250,000, the tax rate is 1%.
  • From $250,001 to $400,000, the rate is 1.5%.
  • From $400,001 to $2,000,000, the rate is 2%.
  • Any amount above $2,000,000 is taxed at 2.5%.

Rebate for First-Time Buyers

Ontario offers a rebate of up to $4,000 on the land transfer tax if you qualify as a first-time homebuyer. This rebate is enough to cover the total tax on a home costing up to $368,000. If the home’s price exceeds this, you’ll receive the $4,000 rebate and pay the remaining difference.

Qualifying for the Ontario FTHB Rebate

To be eligible, you must meet the following criteria:

  • Be at least 18 years old.
  • Be a Canadian citizen or permanent resident.
  • Plan to use the home as your primary residence within nine months of the purchase.
  • You have never owned a home anywhere in the world.
  • If married, your spouse must also never have owned a home.

Additional Taxes and Rebates for Toronto Buyers

If you’re buying a home within Toronto’s city limits, you’ll need to pay a separate municipal land transfer tax on top of the provincial land transfer tax. The rates are similar, but the good news is that first-time homebuyers in Toronto can access a separate rebate of up to $4,475. This rebate fully covers the municipal land transfer tax on homes priced at $400,000 or less. You’ll still get the maximum rebate for homes priced higher and must cover the balance.

Federal Programs for First-Time Homebuyers

Canada also offers federal programs that support first-time homebuyers nationwide, including in Ontario:

  • First-Time Home Buyers Tax Credit (HBTC): The first-time HBTC offers a tax credit of up to $750, which can be claimed on your income tax return for the year you buy your home. This credit helps reduce the income tax you owe and provides some financial relief.
  • RRSP Home Buyers' Plan (HBP): The Home Buyers' Plan allows you to withdraw up to $60,000 from your Registered Retirement Savings Plan (RRSP) tax-free to use as a downpayment on your first home. For couples, the combined limit is $120,000. You have 15 years to repay this amount to your RRSP. The outstanding balance is taxed as income if you don’t make the annual repayments.
  • GST/HST New Housing Rebate: If you buy a newly built or significantly renovated home, you may be required to pay GST or HST as part of your closing costs. The GST/HST New Housing Rebate partially refunds 36% of the GST paid on homes valued at $350,000 or less. The rebate is partial for homes priced between $350,000 and $450,000.
  • First Home Savings Account (FHSA): The FHSA is a registered plan that lets first-time homebuyers save tax-free for their first home. You can save up to $8,000 annually, up to $40,000 over 15 years. If you don’t buy a home within this period, you can transfer the funds tax-free into your RRSP. FHSA contributions also reduce your taxable income in the year they’re made. However, if you withdraw funds for anything other than buying your first home, you’ll be taxed at your regular income tax rate.

Factors Affecting Mortgage Rates in Ontario

Various economic factors and market dynamics shape Ontario mortgage rates. Understanding these influences can help borrowers make informed choices about when to secure a mortgage and what type of rate to choose.

Economic Indicators: Fixed mortgage rates are closely tied to bond market trends. Since October 2023, bond yields have declined due to global economic uncertainties, which has led to a dip in fixed mortgage rates. However, the Bank of Canada’s ongoing quantitative tightening has kept these rates from falling too low, aiming to curb inflation by maintaining some upward pressure.

Supply and Demand in the Real Estate Market: High demand for homes often drives up property prices and can increase competition among lenders. In periods of heightened competition, lenders may reduce rates to attract borrowers, offering more competitive mortgage options. However, as demand fluctuates, so do the rates, reflecting the balance between lender incentives and market conditions.

Personal Factors Affecting Your Mortgage Rate

When determining your mortgage rate, lenders consider several personal financial factors that reflect your reliability as a borrower. Understanding these elements can help you position yourself for the best rate possible:

  • Credit Score: A higher credit score demonstrates financial reliability and often qualifies you for lower interest rates, as it reduces perceived risk for the lender.
  • Downpayment: The size of your downpayment directly impacts your risk profile. A larger downpayment reduces your loan-to-value (LTV) ratio and the lender’s risk, which can result in a more favourable rate.
  • Income: Lenders look at your income to ensure you can comfortably manage your mortgage payments and other financial commitments. A stable, sufficient income strengthens your application.
  • Appraisal Value: If your property’s appraisal value is lower than expected, it may affect your loan-to-value (LTV) ratio. This change could increase your risk profile, potentially raising your mortgage rate.
  • Amortization: Higher amortizations may come with higher interest rates. A more extended amortization period lowers monthly payments but increases total interest costs.

Steps to Secure the Best Mortgage Rates in Ontario

  • Compare Rates from Multiple Lenders: Mortgage rates differ between lenders because of varying business models and risk tolerances. Some lenders may offer lower rates but have stricter approval criteria. It’s wise to compare mortgage rates from multiple providers to find the most competitive rate. Rate comparison tools can simplify this process and save money.
     
  • Increase Your Down Payment: The size of your down payment impacts your mortgage terms. A larger down payment reduces the loan amount, lowers your loan-to-value (LTV) ratio, and can help you secure a lower interest rate. For example, putting down 20% or more lowers your rate and allows you to avoid mortgage insurance premiums.
     
  • Improve Your Credit Score: Your credit score reflects your debt management history and helps lenders assess your reliability. A good score (typically 600 or higher) can qualify you for mortgages with the best rates. If your score is below 600, you may need to apply through a B-lender or private mortgage provider, which often comes with higher interest rates.

    Simple ways to improve your score include:
     
    • Paying off credit card balances.
    • Making payments on time.
    • Limiting new credit applications.
  • Pay Down Existing Debt: Lenders evaluate your debt-to-income ratio when considering your mortgage application. This ratio shows how much of your income goes toward paying debts. Reducing outstanding debts like credit cards, student loans, or car payments can make you a more attractive candidate for a mortgage and may secure you a better rate.
     
  • Choose Between Fixed and Variable Rates: A fixed-rate mortgage offers stability, as your payments remain the same throughout the term. It is ideal if you prefer predictability, especially during economic uncertainty. A variable-rate mortgage, however, has rates that fluctuate based on the prime lending rate. It starts with initially lower payments but carries the risk of rate increases.

How Different Types of Lenders Impact First-Time Homebuyers (FTHB)

For first-time homebuyers (FTHBs) in Canada, selecting the right mortgage lender is crucial in shaping their homebuying experience. Canadian mortgage lenders generally fall into three main categories: banks, credit unions, and monoline lenders, each offering distinct benefits, rates, and approval criteria. By understanding these differences, FTHBs can better navigate which lender might best fit their financial profile and homeownership goals.

  • Banks are among the most commonly used lenders due to their familiarity and full-service banking options. With a wide range of mortgage products, including fixed and variable rate options, banks offer FTHBs access to bundled services, such as credit lines and investment accounts. However, banks may have stricter lending requirements than other options, which could challenge buyers with limited credit history or smaller downpayments.
  • Credit Unions present a flexible alternative, often with a community-focused approach. Since they are member-owned, credit unions frequently provide competitive rates and may have more lenient lending criteria than banks. This flexibility can benefit first-time buyers, particularly those with non-traditional employment or credit histories. While credit unions may offer fewer mortgage products, they can be a strong choice for those seeking personalized service and accessible terms.
  • Monoline Lenders specialize in mortgages exclusively and operates primarily through mortgage brokers. Due to their streamlined business model, these lenders, which don’t offer other banking products, often provide highly competitive rates and lower fees. Monoline lenders can appeal to FTHBs looking for dedicated mortgage solutions without the additional services banks offer. However, they may require working with a broker to navigate product options, adding an extra step to the process.

Why First-Time Homebuyers Should Prioritize Preapproval or Prequalification

For first-time homebuyers (FTHB), before making an offer, getting preapproved or prequalified for a mortgage is critical in understanding affordability. This early step helps buyers set a realistic budget, avoids disappointment, and empowers them to make decisions. Here’s why preapproval and prequalification matter:

  • Clarity on Budget: Preapproval provides a clear picture of what you can afford, including an estimated maximum loan amount. With a specific budget, FTHB can confidently explore properties within their price range, reducing time spent on unsuitable listings. This knowledge empowers buyers to make better decisions throughout their homebuying journey.
  • Streamlined Home Search: Knowing your affordability range helps you focus on homes within your financial comfort zone. Knowing how much mortgage you can afford will simplify your home search, allowing you to make quicker, more confident decisions when you find the right property.
  • Competitive Edge in the Market: A mortgage preapproval letter signals to sellers that you’re a serious buyer, ready to move forward with financing in place. In a competitive market, this can give you an edge over buyers who haven’t taken this step, enabling you to act decisively.
  • Insight into Loan Options: Prequalification or preapproval helps you understand which mortgage products may be available based on your income, credit score, and financial profile. This insight not only aids in choosing the most suitable loan structure but can also save you thousands over the mortgage term.

By prioritizing preapproval or prequalification, FTHB can ensure they’re prepared to act confidently and decisively in a fast-paced market, setting a smooth path toward homeownership.

Red Flags For Lenders

When applying for a mortgage, FTHBs should be aware of common red flags in credit, income, and downpayment that may affect their approval.

Credit Bureau Red Flags

Lenders look closely at credit scores, payment history, and debt levels. A low credit score or minimal credit history can indicate risk, potentially leading to higher interest rates or denial. Late payments, particularly if over 90 days overdue, are a significant concern, as is high credit utilization, where balances are close to credit limits. Limited credit use, with fewer than two active accounts, can also be seen as risky.

Income Red Flags

Lenders prioritize stable income. Frequent job changes or gaps in employment raise concerns about income stability, while self-employed income may require extensive verification. Failing to demonstrate adequate income to cover debt payments could lead to denial.

Downpayment Red Flags

Lenders check the history and source of down payments for legitimacy. Recent, large deposits may trigger a review to ensure funds were legally obtained and not borrowed. Gifted funds require disclosure and proper documentation, and using borrowed funds for a downpayment may indicate additional debt and reduce lender confidence.

Avoiding these issues can help FTHBs strengthen their applications and increase their chances of approval.

Time Your Mortgage Strategy, Not the Market

Navigating the Canadian mortgage market can be difficult, especially during economic uncertainty. Choosing between a fixed-rate or variable-rate mortgage depends heavily on your long-term financial objectives and your comfort with market changes. A variable mortgage may offer cost savings if interest rates in Canada are expected to drop. On the other hand, a fixed-rate mortgage provides stability and peace of mind with consistent payments, making it ideal for those who prefer certainty.

Rather than attempting to time the market's unpredictable shifts, developing a comprehensive mortgage strategy tailored to your financial situation and goals is more effective. For first-time homebuyers (FTHB) or anyone purchasing during periods of economic fluctuation, securing mortgage pre-approval or prequalification from a lender or broker can lock in competitive rates and help simplify buying in markets like Toronto, Ontario, or across Canada.

When buying, refinancing, or renewing a mortgage, focus on your long-term plans rather than being swayed by short-term market trends. Clearly outlining your financial goals and creating a robust mortgage strategy can make comparing Ontario mortgage rates across Canada more effective. Using resources such as a mortgage payment calculator to assess your budget and consulting with experienced mortgage brokers or professionals will help ensure that your decisions align with your overall financial plan and maximize available opportunities.

Purchasing your first home in Ontario can be challenging, but with the right approach and preparation, it can become a fulfilling experience. Use federal and provincial programs, increase your creditworthiness and financial strength, and compare mortgage rates to find the best rates.

Recent Trends in Fixed vs. Variable Rates

Recent shifts in the Bank of Canada’s (BoC) policy rate have given Canadian mortgage borrowers some welcome relief. The BoC has cut its rate aggressively, from 5.00% to 3.75% over the last four policy meetings, causing variable mortgage rates to fall in direct response.

However, Government of Canada (GoC) bond yields—which influence fixed mortgage rates—are less directly impacted by BoC rate cuts. Instead, they are shaped by investors’ forward-looking views on economic conditions, including anticipated moves by the BoC. Recently, GoC bond yields dropped significantly as investors priced in the likelihood of future BoC rate cuts. This drop has made fixed mortgage rates more attractive and affordable.

While many expect fixed rates to keep falling, market trends don’t always go in a straight line. Rising US Treasury yields (which influence GoC bonds) and global events could put upward pressure on fixed rates.

Fixed Rate vs. Variable Rate: Strategic Considerations

  • Variable Rates: With additional BoC rate cuts expected, variable mortgage rates will likely remain a cost-effective choice for the near term. Borrowers comfortable with some uncertainty may find the potential savings in variable rates appealing, as they would benefit directly from lower payments or interest-carrying costs if rates decline further.
  • Fixed Rates: For those who prefer stability, fixed rates are near historic lows, especially on three- and five-year terms. However, with fixed rates close to their anticipated floor, locking in a rate now could be a smart move for more conservative borrowers who value predictability in their payments.

Further rate cuts from the BoC could lower variable rates, while the outlook for fixed rates remains mixed due to external economic influences. Conservative borrowers might consider locking in a five-year fixed rate soon, as future cuts may not impact these rates as strongly. For those open to the ups and downs of variable rates, these could offer the best overall savings, provided the BoC’s rate-cutting path aligns with expectations.

Choose the Best Rate For Your First Home Needs

Choosing a mortgage rate is not a one-size-fits-all decision for first-time homebuyers. Understanding how fixed and variable rates can differ over time is crucial. Your financial situation, risk tolerance, outlook on the Canadian housing market, and mortgage rates in Ontario will help guide you in choosing the best mortgage and rate for your unique needs and financial circumstances. With forecasts suggesting a potential decrease in interest rates in 2025, variable and adjustable-rate mortgages may become more appealing. However, before deciding, reviewing your financial health, assessing affordability, and considering how market conditions align with your long-term homeownership goals is essential.

Partnering with experienced mortgage experts, like those at nesto group, can make all the difference for first-time homebuyers. They can help you create a customized home purchase plan tailored to your unique needs, risk comfort, and future objectives. These professionals will walk you through the mortgage process, ensuring your decisions contribute to a secure financial future.

For expert advice on finding the most suitable mortgage strategy, contact nesto mortgage experts today.