Last Updated on Feb 23, 2024 by James W

When first-time home buyers start shopping for a new home, many make the mistake of looking only at the price tag on a property. But while that big number is important, you’ll need to consider several different factors before signing on the dotted line.

In fact, one number that’s just as important as the price of a home is the mortgage rate. But what exactly is a mortgage rate, and why is it so important? Here’s a little 4-1-1 on mortgage rates.

Breaking Down a Mortgage

Before learning everything you need to know about mortgages, it’s important to understand the ins and outs of these types of loans. Because paying tens of thousands in cash for a home is out of reach for most people, mortgages act as loans. And just like your car loan, your home is collateral on this loan. This means if you fail to pay it back in full, your home can be repossessed by the lender.

Oftentimes, the mortgage amount is far higher than the base price of the home, as it tends to also cover the home’s property tax. This helps break those down as well into more manageable monthly payments. The amortization of your mortgage is the amount of time it will take you to pay back the entire loan.

In Canada, amortizations of between 10 and 20 years are most common, although you may be able to negotiate loans over a longer or shorter period of time, depending on the price of the home and your lender.

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What You Need to Know About Mortgage Rates

The amount of time you spend paying back your mortgage is important for one big reason: interest. Interest will increase the total cost of your mortgage every year you pay it back. Each month, you’ll pay toward the principal, or the initial value of your loan, as well as the interest that has accumulated.

But interest rates are far from a set amount. While the market affects interest rates, they vary from one lender to the next. And the difference of even just a few decimal points could mean paying thousands of dollars more over the life of your mortgage. That’s why it’s important to shop around and compare interest rates to make sure you’re getting the most bang for your buck.

Why Mortgage Rates Aren’t Forever

Getting a competitive mortgage rate is important, but you should also know your mortgage rate isn’t forever.

While amortization describes the amount of time it will take you to pay back your loan, a mortgage term refers to the amount of time that a mortgage interest rate will remain legal. Mortgage terms are often for five years, but may be shorter or longer depending on the loan and lender.

Thus, when choosing a mortgage rate for your upcoming term, you’ll need to choose between a fixed- and variable-rate mortgage. Under a fixed-rate mortgage, you pay the same interest rate for the entire term. Meantime, a variable-rate mortgage will change based on a benchmark rate. After your mortgage term is up, you’ll need to have it renewed.

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If interest rates are high when you agree on the terms of a mortgage, a variable-rate mortgage might help you pay less within the length of the term. But if interest rates are low, a fixed-rate mortgage will help you not get stuck paying more if interest rates increase.

Getting a Mortgage for Your First Home

Qualifying for a mortgage for your first home can be overwhelming. But understanding mortgage terms and rates can help you better understand what you’re getting into and help ensure you’re getting the best rate.


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