A Guide to Mortgage Rates in Canada

Navigating the complex world of mortgage rates in Canada can be challenging, especially in the ever-changing economic landscape. As a prospective homebuyer or current homeowner, understanding the factors influencing mortgage rates and securing the best possible rate is crucial to your financial well-being.

How many types of mortgage rates are available in Canada?

There are two main types of mortgage rates: Fixed-rate mortgages and variable-rate mortgages.

Fixed-rate mortgages are Canada’s most popular type of mortgage, accounting for approximately 74% of all mortgages. With a fixed-rate mortgage, your interest rate remains constant throughout the entire term of your mortgage, typically ranging from 6 months to 10 years.

Variable-rate mortgages, also known as adjustable-rate mortgages, have interest rates that can fluctuate over the term of your mortgage. The interest rate is based on the lender’s prime rate, which is influenced by the Bank of Canada’s overnight lending rate.

There are two types of variable-rate mortgages:

1. Variable-rate mortgages with fixed payments: Your monthly mortgage payment remains the same throughout your term, but the portion of your payment that goes towards interest and principal can change based on fluctuations in the prime rate. If rates go up, more of your payment will go towards interest; if rates go down, more will pay off your principal.
2. Adjustable-rate mortgages (ARMs): Both your interest rate and monthly payment can change based on fluctuations in the prime rate. If rates go up, your monthly payment will increase, and if rates go down, your monthly payment will decrease.

Read our guide to understand the differences between fixed and variable mortgage rates.

What Factors Affect Your Mortgage Rate in Canada?

The key factors that influence the mortgage rate you can qualify for in Canada include:

1. Economic Factors: The overall economic environment plays a significant role in determining mortgage rates. Two primary economic factors that impact rates are the Bank of Canada Policy Rate for variable rates and Government Bond Yields for fixed rates.

2. Type of Borrower: Your creditworthiness as a borrower is a crucial factor in determining your mortgage rate. Lenders categorize borrowers into three main types: Prime Borrowers, Alt-A Borrowers, and Bad Credit Borrowers.

3. Mortgage Type: The type of mortgage you choose also affects your interest rate. In Canada, there are three main types of mortgages: Insured Mortgages (lowest rates), Insurable Mortgages (lower rates compared to uninsurable mortgages), and Uninsurable Mortgages (higher rates).

4. Mortgage Term Length: The length of your mortgage term also affects your interest rate. Generally, shorter-term mortgages have lower interest rates than longer-term ones, as they pose less risk to the lender. In Canada, mortgage terms can range from 6 months to 10 years.

• 1-year fixed rates
• 3-year fixed rates
• 5-year fixed rates
• 10-year fixed rates
• 3-year variable rates
• 5-year variable rates

5. Amortization Period: In Canada, the maximum amortization period for insured mortgages is 25 years, while uninsured mortgages can have up to 30 years of amortization periods. A longer amortization period can result in lower monthly payments but higher overall interest costs. Conversely, a shorter amortization period means higher monthly payments but less interest paid over the life of the mortgage.

6. Property Location: Some lenders may offer different rates based on the property’s location, as certain areas may be considered higher risk due to factors such as market stability, economic conditions, or population growth. Additionally, if you are purchasing a property in a rural or remote area, you may face higher interest rates or limited lender options compared to properties in urban centers.

Understanding these factors can help you better position yourself to secure the most competitive rate possible.

How Can You Get the Best Mortgage Rates in Canada?

Securing the best mortgage rate is crucial to saving money and achieving your homeownership goals. Here are some expert tips and strategies to help you get Canada’s most competitive mortgage rate.

Shop Around and Compare Rates from Multiple Lenders

Don’t settle for the first rate you offer, as rates vary significantly between lenders. Use online mortgage comparison tools to easily compare rates from various lenders and mortgage products. Remember that the lowest advertised rate may not always be the best option for your financial situation.

Improve Your Credit Score

Your credit score is one of the most important factors lenders consider when determining your mortgage rate. A higher credit score indicates to lenders that you are a responsible borrower and a lower risk, which can result in more favourable rates. Aim for a credit score of at least 680 to qualify for the best mortgage rates in Canada.

Save a Larger Down Payment

In Canada, if your down payment is less than 20% of the home’s purchase price, you are required to obtain mortgage default insurance, which can add to the cost of your mortgage. By saving a down payment of at least 20%, you can avoid the cost of mortgage default insurance and potentially qualify for even better rates. Lenders view borrowers with larger down payments as lower risk, as they have more home equity and are less likely to default on their mortgages.

Choose the Right Mortgage Term and Amortization Period

Shorter mortgage terms, such as 1-year or 3-year terms, often have lower rates than longer terms, such as 5-year or 10-year terms. However, consider your long-term financial goals when choosing a mortgage term. Shorter terms may offer lower rates but also come with the risk of rate increases upon renewal. Longer terms provide more stability but may come with higher initial rates.

Similarly, choosing a shorter amortization period can result in lower overall interest costs but higher monthly payments. A longer amortization period can make your monthly payments more affordable but will result in paying more interest over the life of your mortgage.

Consider Working with a Mortgage Broker

Mortgage brokers like Best Mortgage Online can access a wide range of lenders, including some that may not offer their products directly to consumers. Brokers can also negotiate rates on your behalf and may have access to exclusive deals or volume discounts that can result in lower rates.