Editor’s Note: The Bank of Canada has lowered its overnight rate to 3.75%, a decrease of 0.5 percentage points. This cut makes variable mortgages easier to qualify for, but challenges — limited housing supply, elevated prices and corresponding down payment amounts — remain for home buyers.
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Alberta mortgage rate update: October 2024
October’s shaping up to be a fairly decent month for Alberta mortgage shoppers.
Both three- and five-year fixed mortgage rates have drifted close to 4% at some brokerages. That’s not cheap by historical standards, but 4% is a lot easier to qualify for than 5%, which is where fixed rates were earlier this year.
Based on recent government bond activity, fixed rates might be as low as they’re going to get for the foreseeable future. Thankfully, the Bank of Canada is helping make variable rates more attractive.
The Bank announced an aggressive reduction to its overnight rate on October 23. The 50 basis point cut brought the country’s lowest variable mortgage rates down to around 4.75%.
With further rate cuts expected, it might be worth paying a little more for a variable-rate mortgage today rather than locking into a lower fixed rate.
Historical trend: New mortgage loans in Alberta
The average mortgage rate in Alberta
There’s no single average for mortgage rates in Alberta. Even if you had access to all the current mortgage rates being offered by lenders in Alberta, it wouldn’t be much help when you’re mortgage shopping. That’s because the mortgage offer you receive is always specific to you and takes into account multiple factors like your credit score, the type of mortgage you want and the amount you need to borrow.
Think about the “average mortgage rate” the way you would Alberta’s average home price. It’s interesting data to have, but it’s not necessarily relevant to your own home buying journey.
2024 Alberta mortgage rate forecast
Variable mortgage rates
After the Bank of Canada’s decision to lower its overnight rate on July 24, variable mortgage rates continue shrinking. A reduction in the overnight rate typically leads to an identical decline in lenders’ variable rates.
How many times variables dip in the last half of 2024 remains to be seen. The Bank of Canada will be cautious about cutting the overnight rate too quickly, which could trigger another rise in inflation. Another two modest cuts by year end is a reasonable expectation.
Fixed mortgage rates
Because they’re determined by the government bond market, which is driven by investors’ decisions, fixed mortgage rates can be difficult to project over the long-term.
Prior to August 2024’s stock market turbulence, analysts weren’t expecting fixed mortgage rates to fall drastically before the end of 2024. But three-year bond yields quickly sank to their lowest point since April 2022, five-year yields dipped lower than they’ve been in over a year, and fixed mortgage rates edged below 4.3% in some cases. None of this was predicted.
Barring any more investor panic attacks, fixed rates should stay comfortably above 4% for the rest of the year.
Alberta housing market update
Average home prices in Alberta
The average residential home price in Alberta was $498,949 in September, according to the Alberta Real Estate Association — a gain of 9.7% since last September. Detached homes cost $ 583,963 on average, and apartments cost $ 285,731 on average. The average residential price in specific markets includes:
- Calgary: $621,993.
- Edmonton: $410,686.
- Lethbridge: $381,363.
Alberta home sales and price forecast
Many Canadians wonder how the Bank of Canada’s rate cuts will affect the housing market. Will it compel buyers who have been cautiously watching from the sidelines, or will they continue to wait, hoping that rate cuts are just getting started? These are the questions real estate experts — and home buyers — will be watching through the end of 2024.
A report released by real estate company Royal LePage forecasts home prices increasing 9% in the last three months of 2024 compared to the same period in 2023.[1] A report from the Canadian Real Estate Association stated that listings are up this summer compared to 2023 but still below historical averages.[2]
Forecasts compiled by the Canadian Real Estate Association suggest Alberta will see the biggest overall increase in average prices in 2024, rising 8.1%.
Alberta first-time home buyer programs
Some first-time home buyers in Alberta can take advantage of assistance programs offered by both regional and government programs. For example, Attainable Homes Calgary (AHC) helps people with a household income of up to $131,424 fund a down payment. If you sell your home later, you repay AHC the loaned amount plus a portion of any equity appreciation.
Land transfer taxes in Alberta
Alberta’s government charges a fee to process the transfer of the property title: a $50 base fee plus $2 for every $5,000 of the sale price. So, a $400,000 home would cost $210.[3]
Guide to Alberta mortgage rates
Types of lenders in Alberta
Mortgage lenders in Alberta tend to fall into four categories, which include:
- Large chartered banks such as Scotiabank, RBC and TD.
- Credit unions such as Bow Valley Credit Union and connectFirst Credit Union.
- B lenders that work with borrowers with lower credit scores, such as MCAN and Equitable Bank.
- Private lenders, who typically deal with borrowers in need of short-term funding.
Types of mortgages in Alberta
Fixed-rate mortgages
With a fixed mortgage, the interest rate stays the same for the duration of the mortgage term, even when the market fluctuates. Fixed rates typically:
- Tend to be higher than variable interest rates.
- Can provide a greater sense of certainty because they remain the same for the length of the mortgage term.
Variable-rate mortgages
Variable mortgage rates can increase or decrease throughout the length of your term, depending on your lender’s prime rate. Variable-rate mortgages typically have rates that:
- Are lower than fixed rates, and historically, they’ve been known to save borrowers money over the length of their mortgage — if rates remain the same or fall.
- Can increase, sometimes significantly, throughout a mortgage term. When interest rates go up, the monthly payment on a variable-rate mortgage can become more expensive.
» MORE: The difference between fixed- and variable-rate mortgages
Hybrid-rate mortgages
For these mortgages, one portion of your mortgage is subject to a variable rate and the other portion is at a fixed rate of interest. These mortgages:
- Can help moderate the impacts of fluctuating interest rates in a particularly turbulent or uncertain economy.
- Tend to be more difficult to transfer between lenders.
Insured and uninsured mortgages
You must insure your mortgage if you’re buying a home under $1 million with a down payment of less than 20%. Mortgage insurance adds to the cost of your loan. The amount you’ll pay is a percentage of your mortgage amount, and the percentage depends on your down payment — the closer it is to 20%, the smaller the percentage is.
Homes worth $1 million or more require a minimum down payment of 20%, so insurance is not required.
Short-term and long-term mortgages
Short-term mortgages are those that are five years or less, while long-term mortgages are those that are over five years. Shorter mortgage terms mean you need to renew your contract sooner, which can also provide flexibility. Plus, short-term mortgages often have lower interest rates than long-term mortgage rates.
Closed and open mortgages
The main difference between closed and open mortgages is that you can pay off an open mortgage whenever you like and not pay a penalty; if you make additional payments on a closed mortgage, you’ll generally be penalized.
Closed mortgages often offer better rates than open mortgages. But open rate mortgages may be a good option if you think you may be able to pay off your mortgage early.
How Alberta lenders determine mortgage rates
The mortgage rate you’re offered in Alberta will be based on two primary factors; one based on the state of the economy and one based on your financial situation.
Economic factors
Variable mortgage rates are influenced by the Bank of Canada’s overnight rate. When the overnight rate increases or decreases, a lender’s prime rate follows suit. Variable mortgage rates are based on a lender’s prime rate, so as the prime rate rises or falls, so do variable rates.
Fixed mortgage rates are determined by activity in the government bond market, particularly the yields on one-, three- and five-year bonds. Fixed mortgage rates follow the movement of those yields.
Your financial situation
Factors specific to you also affect the rates you’re offered. These include:
- Your credit score.
- Your income.
- Your total debts.
- The loan type you choose.
- The amount you’re borrowing.
- The term length and amortization period of your loan.
Lenders look for signs of risk when assessing these aspects of your finances. The riskier they perceive you to be as a borrower, the higher the rate they’re likely to offer you.
» COMPARE: Current Mortgage Rates in Calgary, Alberta
How to qualify for a lower mortgage rate in Alberta
While some factors that affect rates are beyond your control, there are things you can do to encourage lenders to offer you the best mortgage rates. For example, you can:
- Improve your credit score. To start, pay down any outstanding debt and pay off every bill in full.
- Increase your income. This isn’t always easy, but any additional income will improve your financial position.
- Decrease your total debts. Lenders consider your total debt load when determining the details of your loan.
- Consider all your options. See if adjusting the loan type, the term length or the amortization period of your loan could help.
Factors that affect mortgage affordability in Alberta
A home’s price and the rate you’re offered aren’t the only factors that affect how much mortgage you can afford. You’ll also have to account for the following components, which play a role in all mortgages.
Debt service ratios
Lenders use debt service ratios to determine how much of your income goes toward paying debt. If those ratios are too high, you may not qualify for the mortgage amount you need.
Car loans, credit cards and lines of credit are all examples of debt that require regular payments. Decreasing some of these balances, or relying less heavily on credit, can help you lower your debt service ratios.
The mortgage stress test
You will have to pass the mortgage stress test if you want a home purchase funded by a federally regulated financial institution.
The rules of the stress test say you must qualify for a mortgage at a minimum qualifying rate of either 5.25% or the rate you’re offered plus 2%, whichever is higher. If a lender offers you a rate of 5%, for example, you’ll have to demonstrate you can afford the same mortgage at 7%.
You may be able to avoid the stress test if you apply for a mortgage with a lender that is not federally regulated, like a credit union.
Your down payment
Your down payment is a critically important factor in determining mortgage affordability. The more you can put down, the less you’ll need to borrow. Your monthly mortgage payment will likely be smaller, and you’ll pay less in interest.
Mortgage term
The term is the length of time your mortgage contract is valid. In Canada, mortgage terms can run anywhere from six months to as long as 10 years.
Chances are that your mortgage will have multiple terms during the amortization period until you pay it off in full. Once your mortgage term ends, you can pay your loan off in full, renew it or refinance it.
Amortization period
A mortgage’s amortization period is the time it will take to pay off the loan in full. In Canada, the most common amortization period is 25 years. If your down payment is less than 20%, you can’t have an amortization beyond 25 years.
If your down payment is greater than 20%, you may find some lenders willing to offer amortization periods of up to 35 years.
Why would you want a longer amortization period? The longer your mortgage lasts, the smaller your monthly payment will be. You’ll pay more in interest, but that might be a worthwhile trade-off if it helps you keep your home.
Mortgage shopping is about more than just the rate
A low mortgage rate is usually a primary objective for buyers, but getting the lowest rate doesn’t necessarily mean you’re getting the best mortgage for your needs.
For example, you might opt for a fixed rate, which has a higher rate than a variable rate, if you’re uncomfortable with the risk of rates rising.
Or, if you expect to come into a sizable sum of money soon (via an inheritance, for example), paying a higher rate for an open mortgage, which allows you to pay it off early without penalties, could be worth it.
Frequently asked questions for Alberta mortgage rates
As of October 2024, you can find fixed mortgage rates in Alberta for around 4% and variable mortgage rates for below 5%. The rate offers you receive depend on factors like your credit score, total debt level and income.
Mortgage rates have come down considerably in 2024. Three- and five-year fixed rates are around 4%, but may have reached their bottom for this year. Variable mortgage rates have already dropped by 125 basis points and will keep declining with every Bank of Canada rate cut.
Article Sources
-
Royal LePage, “Home Prices and Forecasts,” accessed September 11, 2024.
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The Canadian Real Estate Association, “CREA Scales Back Resale Housing Market Forecast,” accessed September 11, 2024.
-
Government of Alberta, “Land Titles Act,” accessed September 11, 2024.
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