Best mortgage rates in Canada
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WATCH: March 8, 2023 Bank of Canada Announcement
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A Guide to Mortgage Rates in Canada
Jamie David, Sr. Director of Marketing and Mortgages
We compare the most competitive brokers, lenders and banks in Canada to bring you today's lowest interest rates, free of charge. Canada’s current mortgage rates at the top of this page are updated every few minutes, so they are the best rates currently on offer. To better understand what rate you could be eligible for in a few simple steps, get a mortgage quote - again, it’s completely free to use and you’re under no obligation whatsoever.
Highlights from the Bank of Canada's March 8, 2023 Announcement
On March 8, 2023, the Bank of Canada held the target for the overnight rate, keeping it at 4.50%.
- Canadians with variable-rate mortgages and home equity lines of credit (HELOCs) will see their rates stay unchanged for the first time in a year.
- Canadians with fixed-rate mortgages aren't affected by the announcement directly, but can likely expect lower or stabilized rates when they renew at the end of their current term, as long as bond yields trend lower in response.
- Anyone planning to get a fixed-rate mortgage in the next couple of months should still get pre-approved, as this will protect them from any unexpected rate increases.
- With variable rates remaining unchanged, the mortgage stress test criteria stays the same as well. To see how much you can qualify for, use our mortgage affordability calculator.
- In this latest announcement, the Bank expressed its belief that inflation is continuing to move in the right direction. So long as this trend persists, it is reasonable to expect that rate hikes will be over for the remainder of 2023.
Factors that can affect your personal interest rate
It’s important to understand that the best mortgage rate you qualify for may change depending on your unique borrowing profile. Here are some of the factors that influence what mortgage rate you qualify for:
The type of mortgage: If your mortgage is for a refinance, rather than a purchase or renewal, you’ll be eligible for higher rates. For individuals with an existing mortgage who have good credit and more than 20% equity in their homes, in addition to refinancing, you can also explore a home equity line of credit (HELOC).
Your down payment: If you’re purchasing a home and your down payment is less than 20% of the purchase price and the value of the home you are purchasing is less than $1 million, you’ll be required to purchase mortgage default insurance (sometimes known as CMHC insurance). This insurance is added to your mortgage amount and, while it will cost you money, it will result in a lower mortgage rate as your mortgage is less risky for your lender. If you’re renewing your mortgage, in order to be eligible for the lowest mortgage rates you would have needed to purchase CMHC insurance on the original mortgage.
Your intended use of the property: Your mortgage rate will be higher if you plan to rent your property out vs. live in it as your primary residence.
Your amortization period: Insurable mortgages (i.e. mortgages for homes valued at less than $1 million with a down payment of less than 20% of the purchase price) in Canada have a maximum amortization period of 25 years. Regardless of the price of your home, if you make a down payment of at least 20%, you are able to access a mortgage that allows a longer amortization period, such as a 30-year period. While longer amortization periods will usually result in a lower monthly payment, they can come with a slightly higher interest rate. Moreover, by taking longer to pay back the mortgage, you will pay more in interest overall than you would with a shorter amortization period.
Compare current mortgage rates across the Big 5 Banks & top Canadian lenders. Take 2 minutes to answer a few questions and discover the lowest rates available to you.
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Choosing the mortgage with the best rate that's right for you
Variable vs. fixed mortgage rates
The difference between fixed and variable mortgage rates is whether or not they will change over the term of your mortgage. Fixed rates will stay the same over the course of your mortgage term (usually 5 years), while variable rates will change alongside changes in your lender’s prime rate.
Fixed mortgage rates:
Fixed mortgage rates are a historically popular option, with 5-year fixed mortgage rates accounting for nearly two-thirds of all mortgage requests made on Ratehub.ca in 2022. The benefit of a fixed mortgage is that you are protected against interest rate fluctuations, so your regular payments stay constant over the duration of your term, regardless of what happens in the market. A fixed rate mortgage is ideal for you if you have a low appetite for risk. You’ll know how much you’ll be paying monthly right from the outset and not have to monitor interest rates.
Variable mortgage rates:
Variable mortgage rates are typically lower than fixed rates but can vary over the duration of your term. Variable mortgages are prone to market behaviour (via the prime rate) which affects your payments. That means your payment amounts can change over time. Variable rates remained substantially lower than fixed rates throughout 2021 and into 2022, leading a large number of buyers to opt for 5-year variable-rate mortgages. However, as variable-rate mortgages have climbed to rates that are nearly equal to - and at times higher than - fixed-rate mortgages over the course of multiple rate hikes in 2022, their popularity has diminished.
While variable rates are generally lower, they do fluctuate and can be viewed as more risky when compared to fixed rates. That said, variable mortgage rates have some key advantages you should know about:
- You can convert a variable rate to a fixed rate at any time without a penalty as long as you stay with your original mortgage lender.
- Breaking a variable rate mortgage is substantially less expensive than breaking a fixed rate mortgage. To estimate the cost of breaking your mortgage, our mortgage penalty calculator is a useful tool.
According to York University Professor Moshe Milevsky’s landmark 2001 study, historically, over 90% of Canadians who have maintained a variable mortgage rate throughout their entire mortgage term have paid less in interest than those who have stuck to a fixed rate.
Selecting a mortgage term
Choosing between a short-term mortgage or a long-term mortgage can also affect your interest rate. A short-term mortgage generally offers a lower rate, and, as it requires more frequent renewal, you can benefit from lower interest rates when you renew, if rates stay low at your renewal. Long-term mortgages, on the other hand, offer stability, as you won’t need to renew it often. However, long-term mortgage holders may not be able to take advantage of lower interest rates if the market fluctuates.
Open vs. closed mortgages
If you’re wondering whether to get an open or closed mortgage, the answer is, while an open mortgage may make sense in certain circumstances, the overwhelming majority of Canadians opt for a closed mortgage. While open mortgages have extra flexibility that you might need, closed mortgages are by far the more popular choice not only due to their lower rates, but also because most home buyers do not intend to pay off their mortgages in the short term. Moreover, fixed-rate open mortgages do not exist and variable-rate mortgages are very rare. The most common type of open mortgage is the Home Equity Line of Credit (HELOC). Below are some quick facts about the differences between open and closed mortgages, and you can also find more detailed information on our blog about open vs. closed mortgages.
Closed mortgages have lower rates compared to open mortgages. Closed mortgages can come in fixed and variable form, but place restrictions on the amount of principal you can pay down each year. If you pay off the entire principal in a closed mortgage before the set term, you will face a prepayment penalty, which is normally a 3-month interest charge.
Open mortgages allow you to pay off your entire mortgage balance at any time throughout the term. The drawback is that you pay a premium for that option in the form of higher rates. You might opt for an open mortgage if you are planning to move in the near future, or if you’re expecting a lump sum of money through an inheritance or bonus that would allow you to pay more of your mortgage off.
How do I qualify for a mortgage?
While it’s important to think about qualifying for the best rates, you should also give some thought to the basics that you’ll need to qualify and get approved for your mortgage. To qualify for a mortgage, here are some of the most important things that prospective lenders will want to see.
A good credit score - You should have a credit score of 680 or higher to qualify for the best mortgage rates, but to qualify for a mortgage at all, you’ll need a credit score of at least 560. In addition to looking at your credit score, prospective lenders will also consider any derogatory information from your credit report, such as any missed payments (particularly if they have gone to collections). If you have bad credit, generally defined as a credit score of less than 660, you are unlikely to qualify for the best mortgage rates, and instead you’ll need to use a sub-prime mortgage lender like Equitable Bank or Home Trust. If your credit score is even less than 600, you will most probably need to use a private lender like WealthBridge. Sub-prime mortgage lenders are happy to work with people with a poor credit history, but they will charge higher mortgage rates. It's a good idea to have a detailed understanding of how your credit score affects your ability to obtain a mortgage.
Proof of income - You’ll also need to provide proof of income in the form of pay stubs and/or tax documents like your Notice of Assessment (NOA). Keep in mind that if you recently started a new job, even with proof of income, many lenders will want to see that you’ve held the position for at least a year.
Ability to pass a mortgage stress test - Finally, to be eligible for the mortgage amount you want, you will need to pass a mortgage stress test. The stress test ensures that you can still afford your mortgage payments at a higher mortgage rate, which is called the qualifying rate and is set by the Bank of Canada. So, for example, if you were being offered a mortgage rate of 2.25%, the lender might do a stress test to see if you could still afford payments at the qualifying rate of 5.25%.
Historical Canada mortgage rates
Looking at historical mortgage rates is a good way to understand which types of mortgage attract higher rates. They also make it easier to understand whether we’re currently in a low or higher rate environment, relatively speaking.
Here are some of Canada’s lowest mortgage rates of the year for different types of mortgages over the past five years.
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Is it worth working with a mortgage broker?
First, what exactly is a mortgage broker? Independent mortgage brokers are licensed mortgage specialists who have access to multiple lenders and mortgage rates. They essentially negotiate the lowest rate for you, and because they acquire high quantities of mortgage products, mortgage brokers can pass volume discounts directly to you. There are advantages to getting a mortgage directly from a lender as well as getting a mortgage through a broker, but there are differences between going with a bank vs. a mortgage broker. While going directly to your current bank lets you consolidate your financial products, using a broker allows you to shop around quickly and easily, at no cost to you.
Luckily, you don’t need to choose one or the other. You can speak to multiple banks and use a mortgage broker if you want to. Ratehub.ca is a great place to start, as we compare the best mortgage rates in Canada from multiple lenders. Once you’ve compared your options, we can put you in contact with your chosen provider.