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The impact of your mortgage rate

Buying a new home is an important step in your life. You’ll have to consider a number of things. You’ll need a down payment, so you must save enough and also properly evaluate your budget. Another important step is shopping for a mortgage loan.
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You won’t be surprised to learn that the mortgage rate can have quite an impact on your payments.
What could be better than to measure the difference?

What does 0.4% change?
Let’s say you want to buy a new home and, after the down payment, you still have to borrow $500,000. After analyzing your financial situation, you opt for an amortization period of 25 years, which is the longest allowed for a secured loan1. You also choose to make your payments on a monthly basis. Finally, let’s assume your financial institution offers you a mortgage rate of 2.25% while a competitor offers you a rate of 1.85%, or 0.40% less. Let’s see what the lower rate changes.

Monthly payments
If you opt for a rate of 1.85%, the monthly payment will be almost $2,083, but with a rate of 2.25% the monthly payment is close to $2,181. In other words, a rate change of only 0.4% would allow you to keep an extra $97.70 in your account each month. If you add up the difference over 12 months, the total comes to $1,172. The exact calculation is as follows:

Difference
Annual interest rate 2.25% 1.85% 0.40%
Monthly payment $2,180.65 $2,082.95 $97.70
Annual payment $26,167.84 $24,995.39 $1,172.40

Source: FÉRIQUE Fund Management

taux hypothécaire

The term
Let’s say you choose a 5-year term for your loan, the term being the length of time the loan conditions are in effect. Over 5 years, this 0.40% difference will save you $5,862 ($1,172.40 x 5 years).

Investing, a wise choice 
Now suppose you choose to invest the $97.70 you save each month, rather than letting it languish in your account or spending it. You’ve never contributed to a Tax Free Savings Account (TFSA), so you opt for this type of vehicle because it will allow you to increase your savings without paying any tax. In addition, you’d like to be able to withdraw funds at any time, as needed, which is what the TFSA allows. Your advisor suggests you invest in mutual funds, which could earn you an annual return of 4%*.  After 5 years, your investment could increase to nearly $6,466, putting another $604 in your pocket.

5ans

Now let’s assume you’re disciplined enough to save the $97.70 every month for 10 years. With the same assumptions, namely a 4% return* and no withdrawals from your TFSA, your nest egg could reach $14,332.86.  

10ans

FÉRIQUE’s Mortgage Referral Program
In the long run, the mortgage rate is an important element to consider when you think about taking out a mortgage. It can have quite a positive effect on your finances. There are many tools on the market designed specifically to help you find the best rate according to your situation.

FÉRIQUE Investment Services has partnered with Nesto so that, with only a few clicks, you can find competitive mortgages. In addition, as a client of FÉRIQUE Investment Services, you’ll receive a discount of 0.15% of the amount of your mortgage to invest in FÉRIQUE Funds*. For more information about the program, click here.


1  Source : Government of Canada
* Hypothetical rate of return. See legal note.

FÉRIQUE is a registered trademark of Gestion FÉRIQUE and is used under license by its subsidiary, Services d'investissement FÉRIQUE. Gestion FÉRIQUE is an Investment Fund Manager and assumes management duties in relation to the FÉRIQUE Funds. Services d'investissement FÉRIQUE is a Mutual Fund Dealer and a Financial Planning Firm, as well as the Principal distributor of the FÉRIQUE Funds. Please note that for commercial purposes, Services d'investissement FÉRIQUE is also known in English as FÉRIQUE Investment Services. There may be brokerage fees, trailing commissions, management fees and expenses associated with investment in the Funds. Management expense ratios vary from one year to another. Please read the prospectus before investing. [The rate of return or mathematical table shown] is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of a Fund or returns on investment in a Fund. Mutual funds are not guaranteed, their values fluctuate frequently and past performance may not be repeated. FÉRIQUE Funds pay management fees to Gestion FÉRIQUE allowing it to assume the fees of the portfolio managers, the fees relating to the marketing or distribution of the FÉRIQUE Funds and the administration fees of the manager of the FÉRIQUE Funds. Each of the FÉRIQUE Funds also pays an Administration Fee to Gestion FÉRIQUE in exchange for all operating charges, except for specific Fund expenses as defined in the simplified prospectus. No commissions are payable by the unitholders for a subscription in the FÉRIQUE Funds if such subscription is made through Services d'investissement FÉRIQUE; brokerage fees could however be payable should the subscription be made through a broker other than the principal distributor.