Kitchener Mortgage and Housing Information

Understanding Kitchener Mortgage Rates

Kitchener mortgage rates will vary based on the borrower’s application profile and specific needs. We will review the various categories of mortgages below, as prescribed by mortgage industry regulators, and how the mortgage category affects the rate. Ultimately, the goal is to ensure your best interest rate, given the category of mortgage you’re looking for.

Mortgage rates are generally split into 4 different categories:

Insured Mortgage Rates

This type of mortgage is also known as CMHC insured or ‘fully insured’. Typically, it is for mortgages with less than 20% down payment. The mortgage financing is insured against borrower default, meaning that if payments were to stop, the mortgage insurer would step in to make the payments or take over the mortgage. So the lender wouldn’t face any loss.

Because there is very low lender risk in this situation, we see mortgage rates at the lowest levels when insured. However, there is a one time, borrower paid mortgage insurance premium included in the mortgage balance. The premium ranges from 2.4% – 4%, so this may be factored into the total cost of borrowing.

Insurable Mortgage Rates

Insurable mortgages follow the same stricter approval guidelines as fully insured/ CMHC mortgages. For example, there is a maximum 25 year amortization, and there is no exception to stretch borrowing limits. Also, these mortgage types do not allow for home purchases of $1,000,000 or more (even if the mortgage amount is very low), and do not allow for mortgage refinance transactions. However, if these rules are followed, lower Kitchener mortgage rates can be provided without any mortgage insurance premium paid by the borrower. 

Typically, as the down payment (or equity in the home) increases between 20% – 35%, the rate will drop, eventually reaching levels seen with fully insured mortgages. These mortgages can apply to renewals, making them very popular for their lower rates, without the involvement of CMHC default insurance.

Uninsured Mortgage Rates

The uninsured mortgages typically apply to homes that cost $1,000,000 or more for mortgage refinance transactions where equity is taken out of the home or extended mortgage amortization. Typically, this type of mortgage rate is higher than insured or insurable mortgage rates, however, with the higher rate comes more flexibility. For example, amortizations can be extended to 30 years, and affordability limits can be stretched in other ways given stronger applications.

There are times when uninsured rates are lower than some insurable rates, especially when exactly 20% down payment on a home is targeted, and the mortgage amount is larger, so it is worth keeping this option in mind no matter your situation.

Rental Property Rates

Rental property mortgage contracts are written differently and contain clauses to protect the lender. For example, if the borrower stopped paying, the lender could take over the rent collection. But also, some clauses will allow a percentage of the rent to help approve the mortgage.

There is typically more risk seen with rental property mortgages because even the strongest tenants can lose their jobs or stop paying rent for some other reason. With their mortgage needing payment, the borrower can be left strapped for cash.

Given this, rental property mortgages are less discounted, or in other words, are higher than owner occupied mortgage types discussed above. But the rate premium is typically about .10% higher than the uninsured mortgage rates, so the difference is not too dramatic. If comparing a rental mortgage with standard, owner occupied rates, this is why borrowers will see higher rates with rental properties.

Types of Mortgages Available in Kitchener

Within the 4 major categories discussed above, there are several types of mortgages available in Kitchener. The guide below will help to understand the difference between these commonly discussed mortgage terms quickly.

Fixed Rate: The payment will not fluctuate for the term. If rates increase, your rate is protected. However, if mortgage rates drop, it can be very costly to break the mortgage and switch to the lower rate. This is why it’s important to select the right term length that you’re comfortable with.

Variable Rate: The variable rate mortgages will fluctuate with the Bank of Canada’s overnight lending rate. When we hear the Bank of Canada increase or decrease the prime rate by 0.25% for example, the variable rate will move in step. Over the long term variable rates have shown to be lower, but there are times, such as currently in 2024 where the variable rate is higher than many fixed rates.

Purchase Mortgage: The mortgages available to purchase a home are available to any qualified borrower with as little as 5% down payment

Mortgage Renewal: At the end of the mortgage term, the mortgage will renew at the market rates available. A new term can be selected, for example, a fixed or variable rate mortgage, or a shorter or longer term. It does not need to be the same term as the previous term. Also, it pays to shop around on your renewal because often there is room to lower the rate considerably.

Mortgage Refinance: This can happen during the term, or at the end of the term. Typically, it involves pulling equity out of the home to consolidate debt, upgrade the home or invest. Besides increasing the mortgage amount, the amortization can be extended to help keep payments more manageable. Pre payments can be used to make extra payments in most cases, so that the mortgage can be paid down faster.

Private Mortgage: The private mortgage is designed for situations where the borrower doesn’t fit traditional lender lending policies/ guidelines. As long as approximately 20% equity remains in the home, the credit score and income tend not to factor in as much. Private mortgages can even be set up with no payments. However, there should always be a plan to pay out the private mortgage lender. For example, when the credit score increases, to refinance/ consolidate the private mortgage with a lower rate traditional mortgage.

Commercial Mortgage: This type of mortgage is sought for investment properties that contain 5 units or more or for other property types such as retail, warehouse or industrial. The rates on this type of mortgage can be a bit higher, however, they can be more flexible using the property income to qualify and is a matter of overall investment return to the borrower/ owner.

Reverse Mortgage: Reverse mortgages make a payment to the borrower and are usually set up so that the borrower does not need to make any payment as long as they own the home. Typically, there is a minimum age, such as 55 years old, to qualify for a reverse mortgage and the older the application, the higher the amount they can qualify for. The payments can either be made as a one time payment, a series of monthly payments, or a combination.

What to look out for in the mortgage fine print?

While the mortgage rate determines the price of the interest over the mortgage term, the fine print can be considered the quality of the mortgage. Ultimately, the cost of ownership will be determined based on price and quality. So, as important as it is to ensure the best rate, it is also important to ensure good, flexible quality of fine print.

Breakage Penalty

The way the penalty is calculated is very important because it can add substantial cost later in the term if there is a change. The most common changes are moving and refinancing. If the penalty calculation is not ‘borrower friendly’ and forces you to remain with the existing lender, this gives the bank the upper hand to charge higher rates if you are looking for additional mortgage borrowing.

This can especially be the case if market rates have dropped. 

Be sure to be educated on how the penalty for your mortgage works and that it is a borrower firefly calculation.

Pre payment Flexibility

The pre payment is a flexibility built into the mortgage that lets you pay down the mortgage faster, without penalty or extra cost. However, the way pre payment works differs among lenders.

For example, some payments are only allowed once per year on the mortgage anniversary date. In contrast, some pre payments can be made on any payment date. Some pre payments are 10%, whereas other lenders will offer as high as 20%. There are often situations where the pre payment can come into play that can help you save on penalty or in other ways.

Sales Clause

The sales clause is restrictive and does not allow a move to a different lender during the term. For example, if looking to port the mortgage or refinance during the term, you would be limited to your current lender. This can give the lender an upper hand in pricing rate for the additional mortgage.

Borrowers seeking a variable rate mortgage should be especially careful about the sales clause because when locking into a fixed rate, the rate can be much higher. Also, to refinance, the mortgage must be locked into a fixed rate. So the additional cost can really add up.

Compounding Period

The typical compounding period in Canada is semi annual compounding. This means the interest cost re adjusts two times per year. Sometimes, lenders will provide for monthly or even weekly compounding periods. This slows down the mortgage repayment and leads to higher interest costs. So, even if the rate offered by a lender is 0.05% lower, the cost of borrowing may actually be higher for the term if the compounding period is altered in favour of the lender.

Special Conditions

The Ontario Mortgage Regulator Authority, FSRA, requires that any special or unusual conditions that are included in the mortgage fine print, be disclosed by the mortgage broker to the borrower. There are many examples of special conditions. One is the collateral charge mortgage. While the special conditions may not be inherently costly, they could add extra cost long term. So it is worth paying attention to the Special Conditions section of the mortgage broker disclosure when reviewing a mortgage in Ontario.

How Mortgage Brokers Can Lower Your Mortgage Rate

There are several great mortgage brokers in Kitchener, most of whom understand how to lower a mortgage rate. But it’s to the extent that they pull the following levers that will help to determine the rate offered to you.

Lender Selection: The broker should select from all available lenders, not from a small handful they may be used to working with.

Lender Status: Lenders can offer different rates depending on the relationship with that lender.

Management Discretion: Is the broker successful in obtaining maximum lender discounting on the rate?

Broker Buydown: This is where a mortgage broker can offer an even lower rate than going through a bank branch directly. Brokers can sacrifice some of their lender paid commission to reduce their interest rate. At Altrua, we apply lender buydowns regularly without our customers asking.

How a Kitchener Mortgage Broker Can Increase Your Approval Amount

A Kitchener Mortgage Broker has access to a wide variety of lender options that can help to increase the approval amount. For example, some lenders will focus more on the best mortgage rate, whereas others may not have the absolute lowest mortgage rate, but still a very competitive rate and will allow, for example, an extra $50,000 in approval amount.

A great example of this is the Ontario Credit Unions, available in Kitchener. The credit unions can qualify borrowers based on the contract rate and do not need to use a stress test rate. This can result in a 10% – 20% increase borrower amount. Another example is that some banks will allow for higher approval amounts if the borrower application has significant strengths, such as high credit or high savings.

Also, how a broker positions the application can help optimize the approval amount. For example, a lower down payment can increase the approval amount if there are other debts that are paid off. Suppose there is $10,000 left on a car loan that costs $700 per month, having $10,000 less down payment could go much farther than having a $700 payment on the application.

There are many examples like this. Some mortgage brokers can work with an application in ways others may not see.

Mortgage Broker vs Bank

The Mortgage Broker vs Bank question is one that homeowners in Kitchener will often ask themselves. But in reality, we believe these two mortgage options complement each other. Indeed, mortgage brokers work directly with big banks and medium sized banks every day. It is a partnership more than an ‘all-or-none’ comparison.

A broker can work to lower the mortgage rate with the Bank. Because the bank has less work to process the mortgage, the bank pays the broker to do this instead. The broker can use their volume and negotiation skill to lower the rate. The mortgage broker may even source a lower rate from the same bank by using their lender paid commission to buy down/lower the rate further.

On the other hand, a great personal relationship with a bank or banker can help a borrower, especially when there is an affordability or credit issue. The bank may be able to stretch a little bit farther if the banker or bank knows you better.

Ultimately, the best decision will be unique to each borrower, but for such a big decision, it’s recommended that both bank and broker are spoken to and compared for the best individual result.

Key Considerations When Deciding on a Mortgage Broker

There are all forms of stripes and shapes of mortgage brokers in Kitchener. Some brokers specialize in lower credit, and private mortgage applications, some mainly on rental property mortgages, and others focus on streamlining their operations to help ensure the best mortgage rates.

The key is researching brokers, both online and on the phone, to see what mortgage broker aligns best with your needs. Here are some points to consider when looking for a broker:

• What is their experience in the mortgage industry? How long have they been in it?
• What seems to be the focus of their business? Does this align with your needs?
• How do they keep rates low, what processes do they apply to lower rates?
• What makes them different from other brokers?
• Are the reviews good, or are they any testimonials?
• What is the overall comfort level and feel of the conversation? Once all the points are known, it can come down to this.

About Altrua Financial

Altrua Financial is a mortgage brokerage headquartered in Kitchener, serving all of Ontario.

Altrua was created to address a gap in the Ontario mortgage market. 

Online discount mortgage brokers exist primarily to provide the best mortgage rates possible. The competition for this is so fierce that over time the service levels at discount brokers suffered. Instead of providing a high level of service, these brokerages became ‘order takers’ just to keep competitive with rates.

On the other hand, full service brokerages take more time, answer questions more in depth, provide perspective and advice on varios mortgage options, and typically provide for a smoother closing with more attention to detail. Then, once the mortgage closes the borrower knows how they can contact to get the same high level of advice throughout the life of their mortgage.

Altrua is set up to effectively provide the best, most competitive mortgage rates and the highest level of service, guidance and advice. There are no corners cut, or conversations rushed.

This is all made possible with our efficient, independent Team based business structure that does not depend on multiple levels of management and high advertising costs. As Altrua grows to a point where our efficiency may be threatened, we will stop growing to keep our focus on the customer. This is something the largest of brokerages won’t do. Although we are among the largest Kitchener mortgage brokers, our goal is not to become the largest in Ontario.

Big enough to help you, and small enough to care is our way of thinking.

We welcome your contact and look forward to chatting with you.

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