Whenever making a large purchase—especially something as significant as real estate—it’s important to understand all the costs involved. One key factor to consider is interest rates and how they impact your journey to homeownership.

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How do interest rates impact the amount you end up paying on a mortgage?

Interest rates determine how much you pay to borrow money. When you take out a mortgage, the lender charges interest in exchange for providing the loan. This interest is calculated as a percentage of the loan amount and paid over the agreed-upon term. Even a slight difference in interest rates can add up to thousands of dollars over time. For example, if two people borrow $400,000 but one locks in an interest rate 0.5% higher than the other, the difference in total repayments can be significant. Lower interest rates reduce borrowing costs, making it easier to manage monthly payments. This is why it’s important to keep an eye on market conditions and lock in favorable rates when buying a home.

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How are interest rates determined?

In Canada, interest rates are influenced by a variety of factors. The Bank of Canada plays a central role by setting the prime lending rate, which acts as a benchmark for borrowing costs nationwide. Economic conditions, such as inflation or market stability, also impact interest rates. When inflation rises, rates may increase to cool the economy. Additionally, the demand for loans and the availability of funds from lenders affect how much it costs to borrow. When the Bank of Canada adjusts its rates, it creates a ripple effect across the lending market, influencing the cost of mortgages. During periods of lower interest rates, borrowing becomes more affordable, offering first-time buyers an opportunity to access homeownership with more manageable monthly payments.

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A new path to homeownership

While lower interest rates can make borrowing more attractive, saving for a large down payment remains a challenge for many Canadians. Traditional mortgages often require tens of thousands of dollars upfront, leaving homeownership out of reach for those who can’t save quickly enough. Key’s homeownership program offers a modern alternative. With as little as 2.5% down, you can move into your dream home and benefit from increases in its value over time. Instead of navigating interest rates and mortgage complexities on your own, Key provides a guided path to full ownership at a predetermined price. Learn more about how Key's program works here.

This article may include AI-assisted content. While we aim for accuracy, please double-check details or consult a professional if needed.

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