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Canadian fixed and variable mortgage rates

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Last updated: January 29, 2023

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What you need to know about fixed and variable rate mortgages in Canada

A fixed rate mortgage has the same interest rate for the entire length of your term, therefore your payment amounts remain consistent. A variable rate mortgage will fluctuate with the lender’s prime rate, which is usually influenced by the Bank of Canada overnight rate. There are technically 2 sub-types of variable mortgages, adjustable rate mortgages (where your payment moves with interest rate changes) or variable rate mortgages (where your payment stays fixed but your amortization will move to accommodate rate increases). Note that the length of your mortgage term is not the same as your amortization period. An amortization period is how long it will take for you to fully pay off your mortgage.

The pros of a fixed rate mortgage is the predictability. Your monthly mortgage payments will be consistent for the duration of your term regardless of which way rates move, offering stability when it comes to budgeting.

The cons of a fixed rate mortgage is uncertainty regarding penalty fees if you choose to break your mortgage before the end of the term. Fixed rates will calculate the penalty based on the greater of a 3 month interest penalty or an interest rate differential (IRD), which is just a fancy way of saying that you pay the lender for all the interest they’re missing out on for the rest of your term. This is most punitive in a falling rate environment, meaning rates are lower than when you first got your mortgage. If you have a variable rate mortgage or rates have gone up since you first got your fixed rate mortgage, it’s likely that you’d pay a 3-month interest penalty under either scenario.

The pros of a variable rate mortgage is that, historically, choosing this type of mortgage has proved to save borrowers money. Variable mortgages offer a predictable penalty fee if you choose to break your mortgage before the end of the term, since it will always be equal to 3 months interest.

The cons of a variable rate mortgage can mean financial uncertainty and added challenges with budgeting. If the ‘prime rate’ were to increase, this will also lead to an increase in your mortgage payment. Depending on your mortgage agreement, this could either mean higher monthly payments or changes in your amortization while your monthly payment stays the same.

The right option for you will be a mixture of personal preference and the current economic environment, since lender offers can change as often as each day and the value of each option can differ. When you open an account with Perch, our tools help break down the economic value of either option and you’ll also be able to consult your dedicated mortgage advisor to come up with a strategy that’s right for you.

Key things to know when getting a mortgage

It’s easy to confuse term with amortization. The mortgage term is the length of time your mortgage contract is in effect, and can range in duration from six months to 10 years. The most popular mortgage term in Canada is five years.

The amortization is the length of time it takes a borrower to repay their mortgage in full. The most common amortization period in Canada is 25 years. You can choose a shorter amortization period, which will reduce the amount of interest you pay on your loan since you’re choosing to pay the loan back faster. However, a shorter amortization also means an increase in your monthly payment amount and a lower mortgage amount that you can afford. While it seems counter intuitive, it may not always be advantageous to pay down your mortgage as quickly as possible.

If you are buying a property with a down payment of 20% or more of the purchase price, or if you have at least 20% equity in your property, you can choose a 30-year amortization period to reduce your monthly payment amount (and also pay more interest over a longer period as a result).

Basis points, also called bps (pronounced as “bips”) are a unit of measurement used to describe the interest rate changes in a mortgage. One basis point is the equivalent of 0.01%, or 0.0001. One hundred basis points equals 1%.

If you’re like most people, you’ve likely assumed that by paying a higher down payment on your home purchase, it would translate into a lower mortgage rate. Unfortunately (or fortunately, depending on how much money you were planning to put down), this isn’t always the case.

If your down payment is less than 20%, it is mandatory for you to get mortgage default insurance. Mortgage default insurance is often referred to as CMHC insurance. Since you paid for your own insurance premium with a down payment , the lender doesn’t need to buy it on your behalf.

If your down payment is 20% or more, you do not need to get mortgage default insurance or CMHC insurance. However, this means the lender then has to pay for your mortgage default insurance premium on their end and they charge for it through a higher rate to offset it. The higher your down payment, the lower the default insurance premium and typically by the time you have 35% down payment or more, your rate would be essentially the same as if you had less than 20% down.

The lender has minimal risk under either scenario (5% down or 20% down) because all of these loans have mortgage default insurance. The only difference is who pays for either pay or don’t pay for that premium, which is why rates fluctuate as a result.

The most popular mortgage term in Canada is five years. However, you can choose a mortgage term as short as six months or as long as 10 years.

For most people, getting a mortgage will mean borrowing a significant amount of money and paying it back over a long period of time. Over that period, otherwise known as the amortization, you’ll be paying a lot of interest on that loan. Even the difference of a small fraction of a percentage point, also referred to as a basis point, can have a big impact on the amount of money you’ll pay over the lifetime of your mortgage.

Some factors that will personally affect the mortgage rates you’ll be offered compared to someone else:

  • Your credit score, which provides insight into the likelihood of you paying the mortgage loan
  • Whether you choose a fixed or variable rate
  • The length of your mortgage term
  • The amount of equity (or down payment on a purchase) you have in your home
  • If the property is a rental or not
  • The lenders you work with. Typically, big banks charge more than other lenders

There are many other factors, which your mortgage advisor can go over in more detail with you.

Mortgage rates are updated daily, from Monday to Friday, not including holidays. While the rates are updated daily, that doesn’t necessarily mean the rates will change each day.

Each rate type is directly attributed to different indexes, but are generally influenced by the same thing: The Canadian macroeconomic environment (jobs, economy, inflation, etc).

Variable/Adjustable Rates

The Bank of Canada is responsible for monetary policy, in other words, managing the supply of money circulating in the Canadian economy. They set what’s called the ‘target’ for the overnight rate, which is the interest rate that banks charge each other to cover their daily transactions. The target overnight rate affects what banks set as their prime lending rate. Variable rate mortgages are tied to the prime rate and typically quoted as Prime +/- a spread. So for example, the current prime rate is 2.45% and a Prime – 1% mortgage means your current rate would be 1.45%. Your spread will be locked in during your term (Prime -1%), but if the prime rate increases or decreases, your mortgage rate would increase or decrease as a result.

Fixed Rates

Fixed rate mortgages are typically a spread above Canadian bond yields, which is a largely referenced bond index used as a benchmark.

A change in the prime rate will only affect your mortgage if you have a variable rate, which is quoted to you as prime +/- a percentage. If the lender’s prime rate goes up or down, your mortgage rate and payment will follow. Your payment changes one full payment after the rate change.

For example, if prime rates increased on February 6th and your payments are on the 1st of every month, your mortgage payment wouldn’t increase until April 1st.

Our trusty mortgage advisors can help you through the pre-approval process with confidence.​

How do I get a mortgage in Canada?

Shopping for a mortgage can be a frustrating and time-consuming process. Instead of calling around to multiple lenders or waiting for mortgage brokers to respond, you can quickly see your available mortgage offers in just a few clicks. These are real mortgage offers that would actually be available to you if you qualify, without having to submit a ton of information upfront.

Nothing is more frustrating than not being able to qualify for an advertised mortgage rate. Ads from banks can be misleading. We make it easy for you to instantly compare different mortgages between lenders, rates, different terms, and expected penalty fees. These are mortgages you could actually apply for when you sign up for a Perch account.

When you see a mortgage offer you like, we encourage you to sign up for a Perch account and follow the step-by-step instructions in our online platform to submit your mortgage application. Rates usually can be locked in up to 120 days in advance and your dedicated mortgage advisor will be available by phone or email, seven days a week, in case you need support or have questions about the mortgage application process.

Here are the steps to getting a mortgage in Canada:

  1. Get a mortgage pre-approval
  2. Get an accepted offer on a property (only if you’re purchasing a property)
  3. Submit your mortgage application
  4. The lender will review and send a commitment letter for you to sign
  5. Work with your mortgage advisor to satisfy any mortgage conditions at least 10 days prior to your closing date
  6. The lender will submit mortgage instructions to your lawyer
  7. You sign everything with the lawyer, the mortgage charge is registered and the deal is closed. Congrats! You made it through.

When you sign up with Perch, you’ll be assigned a dedicated mortgage advisor to help you strategize how to pick the right mortgage and submit your mortgage application to the lender. We even have a network of realtors and lawyers you can leverage if you’re just getting started.

To make getting a mortgage online as quick and easy as possible, you should have the following documents available as a PDF and ready to upload into your Perch account.

Note: All documents should be current, valid and not expired. Where applicable, you must show the most recent version of the document, such as a bank account statement or paystub.

  • Government-issued photo identification such as a passport, driver’s license, or permanent resident card
  • A void cheque or pre-authorized debit form from your bank, which is from the account in which your mortgage payments will come from
  • Other documents will be specific to your situation, which we outline in your Perch Account after you start the pre-approval process

What else should I know before applying for a mortgage?

If you’re like most Canadians, you probably asked a close family member or a friend for guidance on where to get a mortgage. Many people get mortgages from their bank, not realizing a bank can only offer their mortgage products. They will not show you mortgage products from other lenders.

When you use a service like Perch, we’ll show you all available mortgage offers, including mortgages from banks, credit unions, and mortgage investment companies, all in one place. In all likelihood, your odds of saving money on your mortgage are much greater when you’re shopping from multiple lenders as opposed to going directly to a bank.

If you’re actively shopping for a property, you’ll want to consult with a mortgage advisor before putting in an offer. In hot markets like Toronto, Ontario or Vancouver, British Columbia or Calgary, Alberta, offers are due on evenings or weekends. These are times when your bank isn’t open, making it difficult to consult with their mortgage specialist and leaving you in the dark when you’re trying to make an offer.

These days, using a mortgage broker is becoming more popular in Canada. Unlike going directly through a bank, brokers can access mortgage offers from multiple lenders, making it easier to shop around.

Brokers are different from online rate marketplaces, which often accept money from lenders to rank their mortgage offers in a specific order. This means the promoted mortgage offer you see at the top of the page isn’t necessarily the one that’s most beneficial to you.

Brokers are only paid if you choose to get a mortgage through them, which means they’re highly motivated to ensure your mortgage application is completed correctly and submitted successfully.

We use data modeling to compare the expected fixed/variable rate against the current rate to determine where rates will move. Lenders typically lag macroeconomic events, so we can identify temporary pricing opportunities.

You should always do your due diligence before applying for a mortgage online. At Perch, your data is secure with AES-256, block-level storage encryption. You can read more about our privacy policy here.

Applying for a mortgage online can save time and simplify the application process. Banks and traditional bricks and mortar mortgage brokers often deal with a lot of paperwork, which can be difficult to keep organized and accessible to everyone who is working on your file. You’ll often need to be on the phone, wait for emails to arrive, and potentially go in-person to sign the relevant documents.

When you apply for a mortgage through Perch, you can get your pre-approval online in less than a few hours and complete a mortgage approval in less than 48 hours.
You should get a pre-approval if you’re looking to get a new mortgage within six months. By having a mortgage professional validate your entire situation (income, down payment and credit score), you can increase the likelihood that when the time comes to submit your mortgage application there won’t be any surprises.

During the pre-approval step, your mortgage professional can also provide you with a strategy to maximize how much mortgage you can afford.
Yes they do. Lenders don’t charge different rates based on the province you’re in, but the number of lenders operating in your province and larger mortgage balances (due to higher home prices) will affect your mortgage rate.

Provinces with the most lenders have the most competition, and as a result, usually offer the lowest rates. Ontario, British Columbia and Alberta have the most active lenders and Quebec has the least. As a result, on average Quebec mortgage rates are 0.15-0.25% higher than other provinces.

In cities with more expensive homes such as Toronto or Vancouver, the average mortgage balance will also be higher. Higher mortgage balances typically also have lower mortgage rates. If you think about it from the lender’s perspective, it’s more efficient this way. It’s roughly the same amount of work to underwrite a $200,000 mortgage and a $1,000,000 mortgage, but your staff need to underwrite five $200,000 mortgages to equate to one $1,000,000 mortgage. If you need less staff to do the same amount of volume, you can save on overhead and pass that back to consumers through lower rates.
While it makes sense to go local when seeking out a realtor, this doesn’t apply when looking for a mortgage broker. When it comes to getting a mortgage, the pre-approval process is the same across all provinces in Canada.

You may end up paying a price premium to go with a local broker. Choosing a mortgage broker who only operates locally may affect the mortgage rates you are offered. The mortgage broker likely does less volume than someone who operates nationally. This means they have less access to a variety of mortgage products, and higher pricing as a result of their lower volumes.

Your success is our success. Our clients trust Perch to get them the best mortgage rates.​

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