Below is a comparison tool provided by RateHub of all the mortgage rates available on the market. You can compare and see the types of mortgages and the rates associated with them. You can also find a variety of frequent asked questions below that gives you a broad overview of how mortgages in Canada work.
There are two types of mortgages that exist in Canada - the fixed rate and the variable rate mortgage. A fixed rate mortgage enables you to have a predetermined fixed rate for a set period of time. The most popular term in Canada is 5 years, however you can get a term for as little as 1 year up to a maximum of 10 years. The term means that you will be paying the same “fixed” rate for the number of years in the term. If you choose to continue with the mortgage after the term is over you must refinance for new terms and rates.
The benefit of a fixed mortgage rate is the security and comfort of knowing exactly how much you will be paying every month for the duration of the term, making financial planning easier. Most people choose a fixed rate because it is a low risk option as interest rates can be volatile. The downside of a fixed term is the rates are usually higher than variable rates as the lender will have to take on the risk of interest rates rising during the term.
A variable mortgage rate is based on the mortgage lender’s prime rate. The prime rate is determined by the Bank of Canada based on current economic conditions. Since prime rates can increase or decrease from month to month, your rate and monthly payment could change as well. There is more uncertainty involved with having a variable rate as the total interest you pay throughout the term is unknown upfront. You may end up paying more or less than what you have paid with a fixed rate, depending on how the prime rate changes throughout the term.
The amortization schedule is the duration of your entire mortgage. This is the total amount of time you have to pay off the mortgage. Most buyers in Canada opt for the 25-year amortization period but you can choose a period of 5 years up to 25 years, and if you have a 20% down payment or more, you can opt for a 30-year amortization.
During the amortization period you have selected, there will be a series of negotiated terms for a set period of time – the mortgage terms. After each term is over, you will either have to pay the principal or renegotiate another term.
Before looking through the MLS for your new home, considering figuring out how much you are able to afford. The Ratehub Affordability Calculator is a great tool for figuring out just that. After that, you should consider getting pre-approved for a mortgage to know exactly how much you can afford and to lock in a mortgage rate. Having a pre-approved mortgage will also allow you to show sellers you’re serious about buying a home, giving you a potential edge in a bidding war.
After figuring what you are able to afford, you’ll know how much of a down payment you will need. It is important to think about size of the payment and how it will impact the mortgage rates you qualify for. In Canada, the minimum down payment is 5% on the first $500,000 of the home price, 10% on anything exceeding $500,000 and up to $1 million. Any homes that exceed $1 million in price will requires a 20% down payment.
One thing to consider when putting a down payment less than 20% of the cost of the home is the extra mortgage default insurance fee. To qualify for a conventional mortgage, you must be able to more a down payment of 20% or more. If not, homebuyers are expected to pay an additional premium between 0.50-2.75% of the mortgage value, depending on the Loan to Value ratio (LTV) and amortization period.
The rates that are listed by the banks online represent their posted mortgage rates. These are advertised rates and can potentially be negotiated down. To get the best possible rate, shop around at different lenders and attempt to negotiate down their posted rates.
The rates quoted by major banks in Canada are standardized and usually higher than the rates quoted by brokers. This is because a broker has access to mortgage rates across multiple banks and credit unions. Their job is to find you the best deal possible by leveraging their resources. Brokers also receive discounts from lenders based on their relationship and volume of deals. This is why it is very unlikely to get a cheaper rate at a major bank, but some banks will consider matching a rate you find, as part of the negotiation process.