Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.

How to compare mortgages in 2022

Here are 5 tips to getting a better mortgage rate in Canada and find the best rate for you.

Compare mortgage lenders in Canada

1 - 5 of 5
Name Product Interest Rate (APR) Loan Term Min. credit score Provincial availability
nesto Mortgages
All of Canada
Online-only mortgage lender nesto gets you low rates and expert advice quickly, and without commissions.
BMO Mortgages
5 Year Fixed Rate
All of Canada
Get up to $4,100 cash back when you apply, switch or refinance to a qualifying fixed or variable rate closed term mortgage or Homeowner ReadiLine with a term of 4 years or longer. Valid until October 31, 2022. Plus, lock in your interest rate for 130 days - the longest of any major Canadian bank.
Tangerine Mortgages
5 Year Fixed Rate
All of Canada
Earn a cash bonus of up to $5,000 when you apply for a mortgage before October 31, 2022. Conditions apply.
Meridian Mortgages
5 Year Fixed Closed Rate
Meridian is a credit union that provides Ontario residents featured rates and the option to defer one payment every 12 months without penalty.
Homewise Mortgages
Not available in Quebec
Homewise's personal advisors can get you mortgage rates from over 30 banks and lenders.

Compare up to 4 providers

A mortgage is a big step toward homeownership. The right home loan can save you hundreds each month and tens of thousands in interest payments, in the long run. The goal is to lock in a mortgage that offers the cheapest rate and the best terms. To find the right mortgage, you need to compare rates, terms, flexibility and prepayment options. Take the time to compare your mortgage options and you’ll not only find a home loan that keeps monthly payments manageable, but also offers you flexibility and options while helping minimize total debt costs.

If you’re in the market for a home loan and looking to compare mortgages, here’s what you need to know.

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. As a home loan, a mortgage uses the property as a form of collateral — the lender is given the legal right to take ownership of the property should you default on your mortgage payments. By using the property as collateral, lenders are able to provide lower interest rates on the home loan — and this keeps overall costs on such a large loan more affordable.

But let’s take a step back: How do mortgages work in Canada?

The total sum that you borrow is called the principal. To repay the principal, you are required to make monthly payments. Over time, these monthly payments reduce your overall debt until the total sum is repaid.

However, to use borrowed money you must pay a fee. In Canada, this fee is calculated using a mortgage rate. This rate is expressed as an annual interest rate, which is used to calculate the money owed to your lender. Remember, this interest rate is the lender’s profit, so the higher the rate, the more profit they make, while the lower the rate, the cheaper it is for you to borrow the money.

To make it easy, the calculation and repayment of a mortgage is amortized over a period of time. In Canada, the most common amortization is 25 years — meaning your monthly loan and interest repayments are calculated so you are completely debt-free within 25 years.

Keep in mind, most Canadian mortgage lenders use an amortization to calculate your mortgage repayments, but your contractual term will be much shorter. This contractual term is the length of time you are legally obligated to make mortgage and interest payments to that specific lender. Once the term is complete, you may still have a loan balance. At this point, you may repay the entire outstanding loan amount, renew with your current lender for another term, or negotiate with a new lender.

If you decide to end your current mortgage contract — break your mortgage before the end of the term — you will be required to pay a penalty to the lender. If you have a variable-rate mortgage, this penalty is equal to three-months worth of interest (based on your current mortgage interest rate). If you have a fixed-rate mortgage, your penalty is calculated using the Interest Rate Differential (IRD) formula. This formula is different for each lender and may cost you tens-of-thousands in extra fees. Call your lender before breaking your mortgage to avoid any nasty surprises.

To determine your interest rate, a lender will review a number of factors including 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 the best mortgage rate offered.

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 an application process that is completely online.

  • A-Lenders. These are retail lenders and include banks, such as the big 5 major Canadian banks as well as smaller, regional banks, along with national and regional credit unions.
  • B-Lenders. This category of mortgage lenders is dominated by monoline lenders — lenders that only offer mortgages in the Canadian marketplace (hence, monoline, which refers to one line of business). Also known as mono-lenders, these lenders can be tand-alone companies, such as Home Trust, private lenders, such as mortgage investment corporations or an affiliate of an A-lender, such as First National, which is the mono-line lender affiliated with CIBC. Non-Canadian banks who offer mortgages are also classified as B-lenders.
  • Direct lenders. Also known as alternative lenders or private lenders, these 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. Direct lenders use private funds and are not under the same regulatory scrutiny as A-lenders or B-lenders. This also means direct lenders can be more flexible when working with self-employed or poor credit clients but it also means they get to set their own requirements and loan terms.
  • Mortgage brokers. Brokers are not mortgage lenders, but they do serve as a critical connection between borrowers and lenders. Many B-lenders only work with mortgage brokers (so, no direct contact with borrowers), plus many A-lenders and direct lenders work with brokers.

Read our reviews of mortgage companies here

What types of mortgages are available?

When shopping for a mortgage, the amount of down payment you provide will help determine whether or not you will get a conventional or high-ratio mortgage.

  • Conventional or traditional mortgage.
    If you put down 20% or more down on the purchase of your property, you will be given a conventional (aka: traditional) mortgage.
  • Insured or high-ratio mortgage.
    If your down payment is less than 20%, you will get an insured mortgage. Also known as a high-ratio mortgage, these home loans require the purchase of mortgage default insurance, which is commonly referred to as mortgage loan insurance, mortgage fees or CMHC insurance. The premium for this insurance is on a sliding scale — you pay more fees when you put down less down payment — and added to the total sum you borrow. (Keep in mind, you’ll also pay PST on the mortgage insurance at the time of closing.)

Whether you get a conventional mortgage or not, you will still need to determine the type of mortgage you require. First, you must decide between an open or closed mortgage.

  • Open mortgage. An open mortgage gives you the option to repay the debt at any time without incurring any penalties. This flexility is ideal if you are close to paying down your full mortgage debt or you anticipate a windfall that will let you pay down a large portion of the debt. Given the flexibility, most open mortgages come with variable interest rates and these rates are typically higher, since lenders won’t make as much on your long-term repayments.
  • Closed mortgage. A closed mortgage requires you to repay your mortgage debt over a specific period of time, known as a term. If you elect to make extra payments, the lender may charge you a penalty, known as a prepayment penalty. This is because the lender is banking on the interest payments included in your mortgage payments as a way of earning a return. This guarantee of business also means lenders can reduce the mortgage rates offered on closed mortgages.

Next, you’ll need to decide on the type of mortgage you want:

    • Fixed-rate mortgage. Fixed rate mortgages are the most common type of mortgage in Canada. They come with regular monthly payments that don’t fluctuate according to market conditions. They also offer set interest rates that remain the same for the duration of your term.
    • Variable-rate mortgage.A variable rate mortgage has an interest rate that can change throughout the life of your loan term. Variable rates fluctuate based on the prime rate, which is typically determined by the Bank of Canada’s overnight lending rate. A variable rate is usually expressed as the prime rate + or – a number, with the number being a percentage set by your lender.
    • 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.
    • 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.

    Overview: How do I compare mortgages?

    The best mortgage for your situation should meet your needs while providing the lowest rates and the best terms and conditions.

    • 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.

    Compare mortgage lenders now

    Decide on a loan type: What are the different types of mortgages?

    There are two predominent mortgage types when it comes to the calculation of mortgage interest: fixed and variable. Fixed-rate mortgages offer a predictable payment each month, while variable rates fluctuate with the market, but are usually lower.

    Fixed-rate mortgages

    Fixed rate graph

    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.

    Compare fixed-rate mortgages

    Variable rate mortgages

    ARM graph

    A variable rate mortgage — also known as an adjustable 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.

    Compare variable rate mortgages

    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 interest you pay.

    When you first start out paying your mortgage, you’ll be paying more toward interest and less toward your principal balance. As each month passes, your principal debt will drop and more of your monthly payment will go to paying off the debt.

    Did you know

    You don’t have to settle for a monthly mortgage payment. You can pay weekly or bi-weekly and even accelerated bi-weekly. The extra frequency allows you to pay off your mortgage faster, which reduces the total amount of interest you pay. In general, paying your mortgage weekly or bi-weekly is the equivalent of paying an extra month, 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.

    How is mortgage interest calculated?

    5 ways to get a better mortgage rate

    To get the best mortgage, consider using these five tips.

    • Compare multiple lenders. Get quotes from at least two lenders for the type of mortgages you want. Don’t forget to ask if there are better options in the current market.
    • Check your credit score. 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%, or not. Quite often homebuyers are told to save at least 20% for a down payment, but lenders don’t reserve their most competitive rates for these buyers. In fact, insured mortgages usually come with the most competitive mortgage rates (since the lender is given some assurance, should you default on your loan).
    • 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.

    First-time Homebuyers

    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’ll have 15 years to pay this money back, but it’s interest-free and a great way to increase your down payment and reduce your mortgage default insurance premiums.
    • Tax-Free First Home Savings Account. Scheduled to roll out in 2023, the FHSA allows Canadians to contribute up to $8,000 to the account, up to a maximum of $40,000. When the funds are withdrawn for the purpose of buying a home, the earnings in the FHSA (and any withdrawals) are tax-free.
    • 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.

    FeeCostFee description
    Land transfer tax0.5% – 2%This is to cover the costs of transferring the property to your name.
    Legal feesMinimum of $500This fee covers the costs of signing and submitting documents via your lawyer.
    Title insurance$100 – $300This protects against losses in the event of a property ownership dispute.
    Home inspection fees$200 – $400A home inspection can help determine a fair price for the home and notify the potential buyer of any problems.
    Property appraisal$300 – $500An 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 – $1,200Little expenses are included under this like title fees, registration fees and more.
    InsuranceVaries 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:

    1. Find a lender. Shop around until you find a lender and loan that works for you.
    2. 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.
    3. Schedule an appraisal. While not always part of the process, some lenders will require an appraisal on the property you want to purchase. Some lenders pay for this, while others will pass on the cost to the borrower.
    4. Review your loan estimate. Carefully consider the details in your estimate before signing for approval.
    5. Finalize and close the sale. Before your closing meeting, you’ll receive a closing disclosure that lists the fees and costs you’re required to pay. If everything looks in order, you can sign the documents. On closing day, the funds you agreed to borrow will be given to the seller and you will get the keys to your new home.

    Compare mortgage lenders now

    Bottom line

    Buying a house is a biggest investment. Set yourself up for long-term success by comparing mortgages, narrowing down the type of mortgage and finding an 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.

    Frequently asked questions

    Recent mortgage articles

    Read more on this topic

    Ask an Expert

    You must be logged in to post a comment.

    Go to site