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Compare Mortgages For 2021
Learn about mortgages in Canada and find the best rate for you.
Updated . What changed?
A mortgage is a big step toward homeownership – and the right one can save you lots of money in the long run. You want to get the best mortgage rate you can to keep your monthly payment down. But sometimes the best rate might not even be the lowest rate.
Looking for the best mortgage rates in Canada? We’re here to help you compare rates plus show you how can you get the best rate for your needs. Here’s what you need to know.
Compare mortgage lenders in Canada
What's in this guide?
- What is a mortgage — and how does it work?
- Where can I get a mortgage?
- What types of mortgages are available?
- How do I compare mortgages?
- What are the different types of mortgage rates?
- How are mortgage rates calculated?
- 5 ways to get a better mortgage rate
- First-time Homebuyers
- What fees will I pay on a mortgage?
- How to apply for a mortgage
- Bottom line
- Frequently asked questions
What is a mortgage — and how does it work?
A mortgage is a loan that helps you buy or refinance a property, such as your primary residence, a vacation home or a real estate investment. So how do mortgages work in Canada?
The amount that you borrow is called the principal. When you take out a mortgage, your lender charges you interest on the principal each month. The interest is the lender’s profit, which is rolled into your monthly payments. For fixed-rate mortgages, your loan payments gradually pay off both the principal and interest based on an amortization schedule that keeps your payments the same each month.
A mortgage is secured using your property as collateral. That means if you miss your mortgage payments, your lender can take your property and resell it to get their money back.
To determine how risky you are a borrower, mortgage lenders consider financial criteria such as your credit score, proposed down payment, assets, debt and income. These details help a lender assess your likelihood of paying back the loan, which ultimately determines approval and your mortgage’s interest rate.
Where can I get a mortgage?
You can get a mortgage from most banks and credit unions and through brokers that work with networks of lenders looking to connect with borrowers. Most lenders require at least some footwork with a loan officer by phone or in person, but at there are also newer digital companies that offer fully-online mortgages.
- Retail lenders. Apply for a mortgage directly with mainstay brands like the big 5 major Canadian banks.
- Wholesale lenders. Wholesale lenders offer mortgages through credit unions and other third parties.
- Direct lenders. Direct lenders specialize in mortgages and originate their own loans. They finance home loans — also called portfolio loans — with their own funds or by borrowing the money. Which means that often set their own requirements and loan terms.
- Mortgage brokers. Brokers can connect you with select mortgage lenders within their networks.
What types of mortgages are available?
Of the many types of mortgages advertised, most fall into two general categories: conventional and insured.
- Conventional or traditional mortgage.
If you put down at least a 20% down payment on your home, you’ve got a conventional mortgage.
- Insured or high-ratio mortgage.
If you don’t put at least 20% down, you’ll need an insured mortgage. Mortgage insurance, also known as CMHC insurance, is an extra charge that’s either lumped into your monthly repayments or paid in a lump sum. You’ll also have to pay PST on the mortgage insurance at the time of closing.
Once you’ve dealt with your down payment amount, you can choose from:
- An open mortgage. An open mortgage means you can repay your principal amount at any time without incurring penalties. Open mortgages usually have variable interest rates and rates tend to be slightly higher since lenders are looking to make up for any interest they’ll miss out on should you pay off your mortgage faster.
- A closed mortgage. A closed mortgage will charge you a penalty, known as a prepayment penalty, if you pay off your mortgage early. Rates are usually slightly lower than open mortgages and can be fixed or variable.
Other mortgage types you can choose from include:
- A cash back mortgage. With this type of mortgage, your lender will typically advance you a cash back lump sum when your mortgage closes. While cash back rates vary between lenders, you can usually expect anywhere from 1-5% cash back.
- A reverse mortgage. This involves getting a loan that allows you to access money from the equity in your home. You can typically borrow up to a certain percentage – usually a maximum of 80% – of the equity that you own in your home. With high interest rates, these types of mortgages are not recommended and come with a high risk. Since you have to be 55 years or older to qualify, you could eventually lose your house to the lender if you’re unable to pay back the loan.
How do I compare mortgages?
The best mortgage for your situation should meet your needs while providing the lowest rates and terms you’re eligible for.
- Decide on a loan type. Learn more about whether a fixed or adjustable rate is best for your property, budget and financial goals.
- Shop around. Compare the fees, rates and terms of at least two lenders based on your preferred loan type and how much you can afford up front.
- Compare APRs. Because it includes your loan’s fees, an APR can be a more accurate way to compare loans than fees or base rates themselves.
- Learn about rate locks. If you find a rate you like, ask about locking it in until you settle on your home to avoid an increased rate when you’re ready to apply.
- Ask about prepayment penalties. Paying more than your minimum payment can shave years off your loan. Make sure your loan applies any extra to your principal without penalty fees.
- Ask for a loan estimate. Lenders are required by law to provide your interest rates, payments, closing costs and key figures to compare like information across loan offers.
- Repeat, if needed. Ask for estimates from as many lenders as you’d like until you find a loan you’re happy with.
What are the different types of mortgage rates?
You’ll find two main types of interest rates when you’re choosing a mortgage: fixed and variable. Fixed-rate mortgages offer a predictable payment each month, while variable rates fluctuate with the market.
Fixed interest rate mortgages are the most common in Canada. They allow you to lock in a rate for anywhere from six months to 10 years. Your rate and payments won’t change over the term, giving you the security of consistent mortgage payments you can budget around. Once your term ends, you’ll need to refinance your mortgage – either with your current lender or a new lender.
Who is a fixed-rate mortgage best for?
- Those who like to budget. Your payments won’t change for the life of the term, meaning you can rest easy knowing exactly how much you’ll pay each month.
- The risk averse. If you don’t want to take a risk on fluctuating market rates, a fixed-rate can give you peace of mind.
Variable rate mortgages
A variable rate mortgage comes with an interest rate that fluctuates with the market. Over the course of your mortgage, your payments will rise or fall depending on the prime rate. The prime rate is set by your lender, however most lenders change their prime rate when the Bank of Canada change their overnight lending rate. While there’s a chance that you’ll pay less than you would with a fixed-rate mortgage – especially for the first few years – your payments could rise later on to an amount you can’t afford.
Who is a variable rate mortgage best for?
- Those who can afford higher payments. Depending on market conditions, the prime rate could rise, and your lender could increase the interest rate that’s attached to the prime. In any case, you’ll want to budget for potential increased rates – especially if the market takes a turn.
- Those looking to take a risk to try and save money. For the most part, variable mortgages can be much cheaper than fixed-rate mortgages – but again, this all depends on future markets.
Combination or hybrid mortgages
A hybrid mortgage, which is also referred to as a combination or a 50/50 mortgage, is a combination of both a fixed-rate and a variable rate. Usually, half of your mortgage will be financed at a fixed-rate while the other half will be financed at a variable rate. The terms for both financing options will be different, which can make understanding your mortgage slightly difficult – but it allows you to take advantage of both types of rates.
Adjustable rate mortgages
An adjustable rate mortgage is reviewed periodically and is then adjusted based on the prime rate. Much like a variable rate mortgage, if the prime rate drops, your interest payments will drop and in turn your monthly mortgage payment will drop, as well as the amount you’ll pay overall for your mortgage. But on the flip side, an increase in the prime rate will result in a higher mortgage payment, higher interest and a higher overall cost for your mortgage.
Convertible rate mortgages
A convertible mortgage is one that gives you plenty of freedom throughout the life of your mortgage. You can typically move between a variable rate and a fixed-rate, or choose a longer or shorter term and pay no penalties for making these changes. If the prime rate is currently low but you expect it to rise in the future, this type of mortgage can help you take advantage of current low variable rates and then switch to a fixed-rate once the prime rate rises.
How are mortgage rates calculated?
By law in Canada, interest on fixed-rate mortgages is compounded semi-annually, or twice a year. During this time, any unpaid mortgage interest is added to the principal amount, which then earns interest on itself. You should note that your quoted APR and your actual APR may differ slightly because of compounding – with your actual APR being slightly higher than the quoted APR. As a general rule, the more often a mortgage is compounded, the higher the interest will be.
If you have a variable rate mortgage, compounding varies and it’s much harder to calculate since your interest payments will fluctuate based on the market. One month your interest rate might be 2.5% and the next it could be 2.6%, which will ultimately affect how much you pay in interest.
When you first start out paying your mortgage, you’ll be paying more toward interest and less toward your principal balance. But as each month passes, your principal would be less, meaning you’ll pay less toward interest and more toward your principal balance.
Did you know
You don’t have to settle for a monthly payment on your mortgage. You can pay weekly or bi-weekly and pay down your mortgage faster – and cheaper. Paying your mortgage off weekly or bi-weekly allows you to pay about a months’ worth extra of your mortgage each year.
Interest rates vs. APR
When you’re looking to take out a mortgage or refinance your existing mortgage, you might see both APR and interest rates — and they’re not the same thing. The interest rate, expressed as a percentage, is the amount that you’ll pay to the lender to borrow money. The APR, which is the annual percentage rate, is usually higher than the interest rate, because it includes interest as well as additional fees that you’ll pay like origination fees and closing costs.
When you’re shopping for a mortgage, comparing the APRs will give you a better sense of the cost of the mortgage. The higher the APR, the higher the combined cost of the fees and interest rate.
- Competitive rates
- Safe and simple application
- Repay up to 25% per year
Apply today and compare competitive interest rates, with rates starting from 1.45%.
- APR range: 1.45% - 2.79%
- Lender type: Direct Lender
- Loans offered: Fixed & Variable rate, Refinancing, HELOC
- Fees: Closing costs
- Min. credit score: 620+
5 ways to get a better mortgage rate
Look to our 5 tips to land the strongest mortgage rates you’re eligible for:
- Compare multiple lenders. Get quotes from at least two lenders for the mortgages you’re interested in.
- Get your credit score in order. A credit score of 740 or higher can open the door to competitive interest rates and low down payments.
- Qualify for special programs. Government, provincial and local programs may offer lower rates and more flexible terms than a traditional mortgage.
- Save at least 20%. Often the larger your down payment, the lower your interest rate.
- Lower your debt-to-income ratio. Your total debt load affects the loans you qualify for. Try to pay down credit cards or loan balances when you’re shopping for the best rate.
With increasing housing prices and a fast-moving marketplace, getting on the housing ladder these days is no easy task. However, the Government of Canada have created incentives to help get first-time homebuyers on the marketplace much faster and easier. Some of these incentives include:
- Home Buyers Plan. You can now withdraw up to $35,000 from your RRSP and use it towards your down payment. You will, however, have to pay it back within 15 years of withdrawing.
- First-Time Home Buyers (FTHB) tax credit. Claim up to $5,000 in tax credits on costs associated with purchasing your first home. Associated costs might include land transfer tax, legal fees or disbursements.
- GST/HST New Housing Rebate. You can qualify for a rebate to recover part of your GST or HST payments that you paid on the purchase price, on the cost of renovating or adding additions, or on converting a non-residential property into a home.
- First-Time Home Buyer Incentive. Eligible first-time homeowners who have a minimum down payment for an insured mortgage can apply to finance a small portion of their home through a shared equity mortgage with the Government of Canada.
What fees will I pay on a mortgage?
Fees vary by bank and loan, but common fees come down to establishing your risk as a borrower, your potential property’s value and the costs of transferring ownership of your new home.
|Land transfer tax||0.5% – 2%||This is to cover the costs of transferring the property to your name.|
|Legal fees||Minimum of $500||This fee covers the costs of signing and submitting documents via your lawyer.|
|Title insurance||$100 – $300||This protects against losses in the event of a property ownership dispute.|
|Home inspection fees||$200 – $400||A home inspection can help determine a fair price for the home and notify the potential buyer of any problems.|
|Property appraisal||$300 – $500||An appraisal will be done to determine the value of the property. Many lenders will cover this cost, so be sure to ask when comparing mortgage offers.|
|Disbursements||$500 – $1,200||Little expenses are included under this like title fees, registration fees and more.|
|Insurance||Varies depending on the price of your home.||You’ll pay mortgage insurance if you put down less than a 20% down payment. PST on the mortgage insurance must be paid at the time of closing.|
No matter your down payment, you’ll need home insurance, which is a separate type of insurance that will protect your home in the case of fires, water damage and more.
How to apply for a mortgage
While other factors might affect the mortgage process, such as the type of loan, these are generally the steps borrowers take when buying a home:
- Find a lender. Shop around until you find a lender and loan you’re comfortable with.
- Apply for your loan. Provide the required information for a lender to assess your risk, and wait for a loan officer to review your details. An underwriter reviews your application and credit report.
- Schedule an appraisal. Your house is appraised and inspected to ensure it meets your bank or financial institution’s standards for lending.
- Review your loan estimate. Carefully consider the details in your estimate before signing for approval.
- Close on your house. Before your closing meeting, you’ll receive a closing disclosure that lists the fees and costs you’ll pay. Sign your documents — and get the keys to your new home.
Buying a house is among the biggest investments most of us will make in our lifetimes. Set yourself up for long-term success by comparing mortgages by narrowing down the type of mortgage and interest rate that fits your needs, budget and lifestyle goals. A good interest rate and term can provide peace of mind and save you thousands of dollars over the life of your mortgage.
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