Mortgage rates are the major thing to consider when buying your first home in Canada.
Perhaps you’re looking to renew or refinance your mortgage contract. Choosing a low-interest mortgage rate is a cost-effective decision to make.
This article covers the best mortgage interest rates in Canada, helping you compare and choose the low rate.
Best Mortgage Rates in Canada For 2022
Here are the best mortgage rates in Canada in descending order.
|Lender||5-Year Fixed Rate|
|True North Mortgage||2.39%|
Note: Depending on your credit history and mortgage type, your mortgage rate may change from time to time.
Historical Mortgage Rates in Canada
To understand the best mortgage rates in Canada, it’s essential to analyze past mortgage rates on different mortgages in the country.
The following are some past mortgages rate in Canada from 2016 to 2020:
|Year||Prime Rate||1-Year Fixed||3-Year Variable||5-Year Variable||5-Year Fixed|
4 Factors that Determine Mortgage Rates in Canada
Not all borrowers qualify for the same mortgage rate in Canada. Depending on your credit history, you can be eligible for a low or high mortgage.
Here are the factors that determine individual mortgage rates in Canada.
1. Mortgage Type
Purchasing a new mortgage or renewal attracts a lower rate than refinance. If you’re looking to renegotiate your mortgage payment in order to negotiate your debt, you should be wary of the increasing mortgage rate.
However, you can access a low mortgage rate home equity line of credit (HELOC) if you have an existing mortgage with enough equity.
2. Down Payment
Your down payment also impacts your mortgage rate. You will get a low mortgage rate if you purchase Canada Mortgage and Housing Corporation (CMHC) insurance due to making less than a 20% down payment.
Furthermore, you need CMHC insurance on your mortgage to qualify for a low mortgage rate on mortgage renewal.
3. Amortization Period
The amortization period refers to the duration of paying your entire mortgage. You will be eligible for a more extended amortization period when you make at least a 20% down payment.
While you can enjoy a long monthly payment, the longer your amortization period, the higher your mortgage rate compared to a shorter amortization period.
4. Property Usage
The last but not the least factor that affects your mortgage rate in Canada is how you use your property. A residential property attracts a low mortgage rate compared to commercial properties.
Types of Mortgage Rates in Canada
There are two types of mortgage rates in Canada, fixed and variable rates. The type of mortgage you choose will determine your overall mortgage rate through your amortization period.
1. Fixed Mortgage Rates
As the name implies, a fixed mortgage rate stays the same throughout your amortization period of mortgage terms. This type of mortgage is suitable for borrowers with low-risk profiles.
Fixed mortgage rates protect your loan against sudden interest fluctuations. Regardless of the nature of the market, your regular payment remains the same throughout your mortgage term.
2. Variable Mortgage Rates
A variable mortgage rate is a type of mortgage rate that changes as the market fluctuates. While variable rates are lower, your payment amount changes from time to time.
If you have a high-risk profile with a stable source of income, variable mortgage rates may be worthwhile due to their attractiveness.
Variable mortgage rates are also convertible to fixed mortgage rates without any penalty. This flexibility allows you to tailor your payment based on your current situation.
Types of Mortgage Terms in Canada
There are different mortgage terms, but they can be grouped into short and long-term mortgage rates.
1. Short Term Mortgages
Short-term mortgages last from three months to three years. They usually have lower mortgage rates because you’re expected to renew your mortgage regularly.
When you renew your short-term mortgage, the rate will be negotiated based on the current market rates.
- For example, if you signed a 1-year term mortgage at a 1.2% rate and someone signed a 10-year long-term mortgage at the same rate, your rate will likely change when renewing your 1-year term while the person with a 10-year term will enjoy the same rate for the next nine years.
2. Long Term Mortgages
As the name implies, long-term mortgages have an extended amortization period, usually from 10 years and above.
The major advantage of long-term mortgages over short-term mortgages is that your rate will be locked in for a long time. Should the interest rate fluctuate in the first year after signing your 10-year term, you are exempted from any increase.
While short-term mortgages risk sudden mortgage increase, long-term mortgages risk a decrease in mortgage rates.
- For example, if you signed a 10-year long-term mortgage at a 5.3% rate, you can’t change it when the rate drops in the first year of your 10-year term mortgage. You must pay the 5.3% rate throughout your 10-year mortgage term.
How to Choose a Mortgage Term in Canada
It can be tricky to choose between a short or long-term mortgage in Canada. This is because a short-term mortgage has a lower mortgage rate than a long-term mortgage. However, a long-term mortgage helps you enjoy an extended amortization period and a stable rate.
Frankly speaking, you can’t make a wrong choice with either a short-term or long-term mortgage, depending on your situation. Since each mortgage term is suitable for different situations, it’s essential to know when to use them.
If you’re looking to sell your property soon, a short-term mortgage could be your best option to avoid the penalties of breaking your mortgage before the end of the term.
On the other hand, a long-term mortgage may be your perfect option if you’re looking to locked-in your mortgage rate for a long period. This gives you peace of mind against any sudden interest increase.
Overall, understanding the advantages and disadvantages of short-term vs long-term mortgages will help you choose the best term that suits your situation.
How Do I Qualify for a Mortgage?
It’s essential to consider your eligibility before thinking about the best mortgage rates in Canada.
Even if you already have an existing mortgage and are looking for a mortgage renewal, knowing how to qualify for the best rate is critical.
Here are three major factors that will determine your eligibility for the best mortgage rate in Canada.
1. Have a Good Credit Score
A good credit score is at the core of the requirements of most mortgage lenders in Canada. Besides giving you access to a low mortgage rate, a good credit score also helps you get quick approval.
There are different definitions of a good credit score for different financial situations. For the best mortgage, 680+ is the definition of a good credit score.
That said, you can qualify for another mortgage with a 560+ credit score. However, the interest is likely to be higher compared to the person with a 680+ credit score.
If your credit score is bad, consider a subprime lender such as Home Trust or Equitable Bank. You may need to use a private mortgage lender to qualify for a mortgage if your credit score is less than 600.
2. Provide Proof of Income
You must provide proof of income to qualify for a mortgage in Canada. This could be a pay stub or your tax document.
That said, most lenders will not approve a mortgage in Canada without spending at least one year on your job.
3. Pass a Mortgage Stress Test
Lenders conduct a mortgage stress test to assess your ability to afford a high-interest mortgage payment known as qualifying rate.
For example, a lender may conduct a mortgage stress test to assess your ability to pay a qualifying rate of 6% if you’re approved for a 3.5% mortgage.
Buying a Mortgage in Canada: Are Mortgage Brokers Worth it?
Most people use mortgage brokers to access mortgages in Canada. That’s not to say that you can’t buy a mortgage directly through a lender.
Mortgage brokers have in-depth experience in the mortgage industry and can negotiate the best deal for you. The ultimate advantage of a mortgage broker is low mortgage rate negotiation.
In addition, mortgage brokers help you avoid costly mistakes when buying a mortgage for the first time. They will help you save your time determining the best mortgage lender and term that suits your situation.
If you’re buying an unusual property, have a low credit score or have an unstable source of income, a mortgage broker will help you identify the perfect mortgage.
Furthermore, mortgage brokers partner with several lenders, helping you compare and choose from the best mortgage rate in Canada.
How to Lower Your Mortgage Payment in Canada
Qualifying for the best mortgage rate in Canada is not the end of the game. Knowing how to reduce your mortgage payment will help you save even more.
Here are three practical ways you can lower your mortgage payment in Canada.
1. Go for a Lower Mortgage Rate
Buying a lower mortgage rate is always the number means of lowering mortgage payments. A mortgage broker can help negotiate a low mortgage regardless of whether it’s a fixed or variable rate.
2. Make a Bigger Down Payment
Making more than the minimum down payment will help you reduce the overall cost of your mortgage payment. Lower down payment may lead to a longer amortization period, that’s paying more on interest.
3. Make a Prepayment
If you’ve enough income, making a prepayment will save you a lot on paying off your mortgage. Although there could be a penalty for prepayment depending on your agreement.
Depending on your income, you can prepay a part or the complete mortgage. Taking a side hustle is one of the easiest ways of making mortgage repayment.
There are different ideas on how to make extra income from home and online. All you need is to choose the one that suits your situation.
Now you know the best mortgage rates in Canada and how to narrow your selection to the one that suits your situation.
Buying a mortgage through a mortgage broker will always help you get the best deal. However, it’s essential to know what goes into the process of approving a mortgage in Canada.
Getting a low mortgage rate is not enough. Paying it off early could be your best option for reducing costs.
Hopefully, now you know how to compare the best mortgage rates in Canada.
FAQs on Best Mortgage Rates in Canada
Does Canada Have 30-Year Fixed Mortgage Rates?
Yes. But 25-year amortization periods are more popular than 30-year fixed mortgage rates in Canada.
Is a Fixed or Variable Mortgage Better?
A fixed mortgage rate is better if you can’t bear sudden interest fluctuations. However, a variable mortgage could be your best option if you’re looking for a lower but unstable mortgage rate.
How Can I Calculate My Mortgage Payments?
This Mortgage Payment Calculator shows you your payments and amortization for any rate(s) you find on this website. You can even assume lump-sum prepayments to estimate how much faster you’ll be able to pay down your loan.
Why Should I Compare Mortgage Rates?
Comparing mortgage rates will help you choose the best rate that suits your situation. Only when you compare mortgage rates will you know the market’s low and high mortgage rates. If you have more questions on the best mortgage rates in Canada, drop a comment below.