Ready to buy a home? Mortgage rates are likely one of your top concerns. Type “best mortgage rates Canada” into your favourite search engine, and you’ll be directed to pages of mortgage lenders or brokers. However, finding the lowest mortgage rates in Canada is just one part of the equation. You won’t get access to them if you don’t qualify. Read on to get tips on how to get the best mortgage rate in Canada, so you can start your journey to home ownership feeling informed, confident and ready to take action.
What is a Mortgage?
Before we tell you how and where to get the best mortgage rates in Canada, let’s make sure we’re on the same page when defining a mortgage.
Unless you plan to make an all-cash offer for the total cost of your new home, when you purchase it, you’ll need to have enough of your own money saved for a down payment. Then, you’ll apply for a mortgage in order to pay off the balance owed. A mortgage is the loan you receive from a lender to pay this balance
What are Mortgage Terms and Amortization
When you’re shopping for a mortgage, you’ll need to choose the term and amortization period.
The term and amortization period affect your overall mortgage costs, interest rate, and regular payments.
Mortgage Term
The mortgage term is the time your mortgage contract is in effect. Terms can range from a few months to 5 years or more.
At the end of each term, you’ll need to renew your mortgage. You’ll likely need multiple terms to repay the full amount. If you pay the balance at the end of your term, you won’t need to renew your mortgage.
Mortgage Amortization
The amortization period is the time it takes to pay your mortgage. During the amortization period, the portion of your payment that goes toward the principal increases, while the part that goes toward interest decreases.
If your down payment is less than 20% of your home’s price, in Canada, your maximum amortization period is:
- 30 years if you’re a first-time buyer purchasing a new build
- 25 years in all other cases
If your down payment is more than 20% of your home’s price, your lender will set your maximum amortization period.
What Is a Mortgage Rate?
Lenders charge fees to cover the costs and risks associated with lending and, of course, to make a profit from the financial products they offer. A mortgage interest rate is a percentage fee charged on a mortgage loan.
Understanding your monthly mortgage repayments and how changes to interest rates could impact them is important when looking at mortgage offers.
The mortgage interest rate will differ depending on:
- The amount you borrow
- Your deposit amount
- The type of mortgage you choose (fixed or variable, open or closed)
- Any specific deals that your lender may be able to offer you
Your home becomes the collateral to secure the loan, meaning that if you fail to meet your mortgage repayment obligations, the lender has the right to take your property.
Purchasing a home and taking on a mortgage is a significant commitment. Shopping for the lowest mortgage rates in Canada could save you tens of thousands of dollars over time.
10 Tips to Help You Find and Negotiate the Best Mortgage Rates in Canada
1. Research Mortgage Interest Rates
There is no one-size-fits-all approach to getting a mortgage. There are a few different types of mortgages, each of which will impact the interest rate you receive, based on a few of the factors we will be touching on later.
The first, and also the best option, is a prime mortgage. These are offered to borrowers who are considered less risky by lenders. These borrowers typically have a credit score of at least 670, have contributed a down payment of between 10 and 20%, and have a low debt-to-income ratio. The most significant perk of a prime mortgage is a lower interest rate, which will help the borrower save thousands of dollars over the loan’s lifetime.
The other is a subprime mortgage. These are offered to borrowers with a lower credit score, typically between 580 and 669. Subprime mortgages carry higher interest rates because borrowers are seen as “riskier.”
By knowing your credit score before speaking with a professional, you can be sure to get the appropriate interest rate.
2. Decrease Your Debt-to-Income Ratio
A simple way to get the best mortgage rate in Canada is to decrease your debt-service ratio. This represents the percentage of your gross monthly income used to pay off your debts. Lenders use this value to assess the risk you carry when borrowing money. Canada Mortgage and Housing Corporation recommends keeping your Gross Debt Service (GDS) ratio (your monthly household income that covers your housing costs) below 39% and your Total Debt Service (TDS) ratio below 44%.
To decrease this ratio, make larger payments on your debts, reduce debt by purchasing only what you can afford in cash, or increase your income. By lowering your debt-to-income ratio, you signal to lenders that you are less of a risk.
3. Improve Your Credit Score
Improving your credit score takes time, but it can be done. Some easy ways to accomplish this are to make larger payments on your outstanding credit card bills, pay off any collections that may be on your credit report, get caught up on all your bills, and keep outstanding balances on credit cards low.
4. Increase Your Income Stability
Want to know how to get the best mortgage rate? Improve your income stability. Income stability signals to a lender that you’re less likely to default on your mortgage. First, sit down and honestly assess how much money you bring in every month versus how much you spend, so you can make the best plan to improve your income stability. Then, look for ways to spend less and earn more. This can be accomplished by cutting out frivolous expenses, asking for more hours at work or taking on a side hustle.
5. Gather Your Employment History
Before meeting with a mortgage lender, gathering your employment history is key. Mortgages are large loans, and before they dole out the lowest mortgage rates in Canada, lenders want to know that you are serious about paying them back and are at a low risk of default on your payments. Compiling your employment history shows the lender that you have a track record of past gainful employment and are unlikely to be unemployed in the foreseeable future.
6. Save More and Increase Your Down Payment
By contributing a larger down payment, you can reduce the size of your mortgage and attract a more favourable interest rate. Typically, if your down payment is greater than 20%, you will receive a better interest rate than if you put down only 5%.
7. Use Cash Reserves
Lenders will look at your savings account to ensure you have enough cash in reserve to cover your mortgage in case of job loss or an adverse change in your financial fortunes. Consider saving up three or four months’ worth of mortgage payments to get the best mortgage rates in Canada.
8. Consider Interest Rates
Beginning in 2021, Canada experienced a massive increase in inflation. From just 0.72% in the spring of 2021, the annual inflation rate climbed to a 39-year high of 8.1% in June 2022.
In order to bring the inflation back to a targeted level of 2%, the Bank of Canada (BoC) executed an aggressive monetary tightening cycle, raising policy rates 10 times and increasing its benchmark rate from 0.25% to 5% between March 2022 and July 2023. It then held the rate steady at 5% for what consumers experienced as an agonizing six more policy rate decisions.
The BoC kicked off its easing cycle in June 2024, cutting its key interest rate by 25 basis points to 4.75%, followed by more rate cuts in July, September and October. It dropped the rate by another 50 basis points for its year-end announcement, so that as of December 2024, interest rates in Canada were down to 3.25%.
If you can wait to purchase your home, consider making your buy when interest rates are at their lowest to reduce your monthly payments as well as the interest paid over the lifetime of your loan.
9. Low- Versus High-Ratio Mortgages
If you have less than 20% as a down payment on the home you plan to purchase, you’ll need mortgage loan insurance. This serves as an added layer of security for lenders should you default on your loan. This fee can be paid up-front or added to your monthly payments. To avoid this expense, save up at least 20% of your down payment.
10. Shop Around
Once you have completed all the steps above, if you want to find the lowest mortgage rates in Canada, it is essential to shop around. Some lenders can give you a better borrowing rate than others, and it is vital to know all the options available to you before you commit to one of the most significant investments you’ll make in your lifetime. While you’re at it, research terms and conditions, early payment or cancellation penalties, amortization periods, and any special deals offered by lenders, as these will all affect the total cost of your mortgage.
You might also want to work with a mortgage broker. Mortgage brokers act as a third-party intermediary between the lender and the borrower. A mortgage broker will collect your financial information and “shop around” for the best mortgage rates in Canada from their pool of lenders. And the best part? A mortgage broker’s services don’t cost the borrower a thing.
