Number of Years
Fixed or Variable
True North Mortgage
Kawartha Credit Union
|Lender||Rate||Minimum Monthly Payment|
There are a few different types of mortgage interest rates in Canada: Fixed interest rates, variable interest rates, or a hybrid combination of the two. These mortgage rate options will affect how your interest rate changes over time. Your mortgage rate will also be affected by certain factors that your mortgage lender will look at.
The most common mortgage term is 5 years, with it accounting for 49% of all mortgages by the end of 2020, but mortgage term lengths can be for as little as 6 months or as long as 10 years. The term is the period of time that your mortgage contract is valid for. Once your mortgage term is over, you can renew your mortgage or refinance your mortgage. A new mortgage rate will also need to be renegotiated at the end of the term.
The mortgage term that you choose will affect your mortgage rate. Generally, shorter-term mortgages will have a lower mortgage rate, while longer-term mortgages will have a higher mortgage rate. Many Canadian mortgage lenders offer special and attractive mortgage rates for 5-year mortgages due to its popularity and competition between lenders. In 2020, a Bank of Canada working paper found that 80% of all mortgages in Canada were short-term mortgages, with terms ranging from 2 years to 5 years.
In Canada, out of the $1.2 trillion CAD in outstanding residential mortgages in May 2021, the 5-year fixed rate mortgage takes the crown with over $660 billion, or more than 50%, of all mortgages in Canada. There are more 5-year fixed rate mortgages than all variable rate mortgages combined. The 5-year fixed rate mortgage is so popular that the CMHC uses the Bank of Canada's 5-Year Benchmark Posted Rate for its mortgage stress test.
Short term mortgages have lower mortgage rates since the borrower will need to renew their mortgage more often. Having a short term mortgage usually means a mortgage with a term length from 6 months to 3 years. Renewing often means that their mortgage rate will be renegotiated more often and will follow current market rates more closely. For example, consider a 1-year mortgage and a 10-year mortgage. If interest rates rise in one year, the 1-year mortgage will need to be renewed at a higher mortgage rate, while the 10-year mortgage will continue to have the same mortgage rate for nine more years. Borrowers will have increased exposure to interest rate changes in the near-term, which means less certainty. In exchange, short term mortgage rates are often lower.
Long term mortgages, ranging up to 10 years, offer more peace of mind as its mortgage rate will be locked-in for a longer period of time. You won’t need to worry about changes in interest rates in the near future or fuss over mortgage renewals as often. A long term mortgage allows borrowers to lock-in a mortgage rate today if they feel that interest rates will rise in the future. Locking-in your mortgage rate for a longer period of time means that your mortgage lender will want to charge a higher mortgage rate in return.
However, just as a short-term mortgage has a risk of mortgage rates increasing, a long-term mortgage has a risk of mortgage rates decreasing. For example, a 10-year mortgage signed today won’t be able to take advantage of a lower mortgage rate if interest rates fall in the next two years.
Canada’s mortgage term lengths are relatively short when compared to mortgages in the United States. The most common mortgage in the U.S. is the 30-year fixed mortgage, which means that homeowners don’t need to renew their mortgage for the entirety of their amortization. This is a large departure from the Canadian mortgage market, where homeowners expect to renew and renegotiate their mortgage rates often.
There are other considerations to your mortgage term length besides just the mortgage rate. Breaking your mortgage, which happens when you sell your home and move or renegotiate your mortgage before the end of the term, will come with significant mortgage prepayment penalties. You will be able to avoid mortgage penalties if you wait until your term expires. A short mortgage term would be more suitable if you’re thinking of selling your home soon or refinancing your mortgage.
There’s also a chance that mortgage rates might not move in the direction that you’re predicting it will, or it might not move as much as you thought it would. For example, a 10-year fixed mortgage rate might be at 5% while a 5-year fixed mortgage rate might be at 3%.
If interest rates stay the same for the next ten years, you’ll be paying a mortgage rate of 5% while you could have had a mortgage rate of 3% for two 5-year terms.
If interest rates increase by 2%, where the first 5-year mortgage term has a rate of 3% and the second 5-year mortgage term has a rate of 5%, you’ll still be worse-off with a 10-year mortgage as you’re paying the 5% rate for the first five years rather than 3%.
Mortgage rates will need to increase significantly for a 10-year mortgage term to break-even over shorter-term options.
At the end of each term, you have the option to renew or refinance your mortgage.
Your mortgage lender might not reassess your credit score or debt service ratios if you’re renewing at the same lender. If you’re switching to a new lender, you’ll need to be reassessed and you may need to pass the mortgage stress test.
Having a fixed rate means that your mortgage rate will not change until your mortgage term is over. You can choose to get a fixed-rate mortgage for a long term length if you think rates will increase soon, or for a short term length if you think rates will stay the same or decrease. The 5-year fixed rate mortgage is the most popular mortgage type in Canada.
On the other hand, a variable mortgage rate can change at any time. Your mortgage payments will still stay the same, but what changes is the percentage of your payment that goes towards paying off the mortgage principal. If rates decrease, a larger amount of your monthly payments will be going towards your principal. This means that if interest rates decrease, you’ll be able to pay off your mortgage faster with a variable rate.
If interest rates rise, a larger amount of your monthly payments will go towards your mortgage interest. Your monthly payment amount is fixed for the duration of your term, so you won’t have to pay more money if rates rise. However, your mortgage payments must be enough to cover at least your monthly interest cost. If interest rates increase significantly, where your mortgage payment no longer covers the interest cost, then your mortgage payment amount will need to be increased.
If you’re comparing a variable rate and a fixed rate at the same point in time, a variable rate will almost always be lower than a fixed rate. Just as how a longer term mortgage will have a higher rate when compared to a shorter term mortgage, borrowers will pay a premium for locking-in a fixed rate.
Historically, variable rates have performed better than fixed rates, as found in a 2001 study by the Individual Finance and Insurance Decisions Centre. That’s because interest rates have generally fallen over the past few decades, meaning that borrowers with a variable mortgage rate would have benefited from falling interest rates.
In today’s low interest rate environment, it’s not certain if interest rates can continue to decrease further. While the focus can be on the direction of the change, you should also pay attention to how large the interest rate changes can be.
Since variable rates are often already priced at a discount to fixed rates, variable rates would be a better choice if interest rates don’t move at all. Variable rates might still be a better choice if interest rates only increase slightly and later on in your mortgage term.
A fixed mortgage rate would be better if you think interest rates will significantly rise in the near future. Many borrowers also place value on the peace of mind that a fixed mortgage rate gives. The slightly higher mortgage rate might be worthwhile in exchange for not having to worry about interest rate fluctuations.
The prime rate is an interest rate that is individually set by banks in Canada that is used for their own lending products. Variable mortgage rates will be priced at a premium or discount to the bank’s prime rate. Your premium or discount to the prime rate will remain the same.
If your variable mortgage had a rate that was a 0.5% discount to the prime rate, then your variable mortgage rate will follow the bank’s prime rate at a 0.5% discount. If the bank’s prime rate was 2.45%, your variable mortgage rate will be 1.95%. If the prime rate increases to 2.8%, your variable mortgage rate will now be 2.30%.
The margin between your variable mortgage rate and the bank’s prime rate will depend on your creditworthiness. Low-risk borrowers will be able to get a larger discount (or smaller premium) to prime, while high-risk borrowers will get a smaller discount (or larger premium) to the prime rate.
Prime rates are set by individual banks. For example, RBC sets the RBC Prime Rate (Royal Bank Prime), which is then used for RBC variable-rate mortgages.
The Bank of Canada does not set the prime rate or mortgage rates, but they do indirectly affect mortgage rates through their policy rate. The prime rate follows changes in the Bank of Canada's policy interest rate, which is also called the overnight rate. If the Bank of Canada increases their policy interest rate, then banks will in turn increase their prime rate. This will then cause variable mortgage rates to increase.
Some banks and mortgage lenders offer hybrid mortgages, which are also called combination mortgages or 50/50 mortgages. With a hybrid mortgage, half of your mortgage will be a fixed rate, while the other half will be a variable rate. You can also mix term lengths with a hybrid mortgage. For example, you can choose to have a 2-year fixed mortgage for 50% of your mortgage balance and a 5-year fixed mortgage for the other 50% of your mortgage. Hybrid mortgages do come with a few drawbacks, such as additional legal and home appraisal fees.
The insurability of your mortgage will affect your mortgage rate. Insured mortgages are those with CMHC mortgage default insurance or private default insurance from Canada Guaranty or Sagen. The borrower will pay for the mortgage insurance premiums.
Since the lender has zero risk, they will offer the lowest mortgage rates for insured mortgages. The mortgage rates that you see advertised online are often only for insured high-ratio mortgages, which are mortgages with a down payment less than 20%. Insured mortgages will need to meet CMHC mortgage requirements.
With insurable mortgages, the borrower won’t pay for mortgage insurance. The mortgage won’t be individually insured either. Instead, the lender can choose to bulk insure their portfolio of insurable mortgages and pay for this insurance themselves.
What this means to you is that the cost of mortgage insurance isn’t directly paid by you if mortgage insurance isn’t required. Insurable mortgages will have to meet the same requirements as an insured mortgage, but the only difference is that an insurable mortgage will need to have a down payment of at least 20%. Insurable mortgage rates are also slightly higher than insured mortgage rates.
Uninsurable mortgages are all other mortgages that cannot be insured. This might be because the amortization period is too long, the borrower’s credit score is too low, or their debt levels are too high. Uninsurable mortgages will have higher mortgage rates compared to insured and insurable mortgages.
An insurable mortgage can have a mortgage rate that is around 20 basis points (0.20%) added on top of an insured mortgage rate. Uninsurable mortgage rates will have around 25 basis points to 35 basis points (0.25% to 0.35%) added on top of insured mortgage rates.
|Lowest Rates||Lower Rates||Regular Rates|
|Insured Mortgages||Insurable Mortgages||Uninsured Mortgages|
Your down payment will reduce the loan-to-value (LTV) of your mortgage. For example, a 20% down payment will result in a LTV of 80%. A higher mortgage down payment means that you’ll be borrowing less compared to the price of your home, which naturally will result in less mortgage interest being paid. You will also likely be able to receive a slightly lower mortgage rate if you make a large down payment, as the risk is lower when compared to a mortgage with a small down payment.
However, this risk of default is eliminated if you make a down payment within a certain range, specifically between 5% and 20%. Making a down payment less than 20% makes it a high-ratio mortgage, which is required to have mortgage default insurance. This can add on from 2.80% to 4.00% of your mortgage amount in mortgage default insurance premiums. There is also often a difference between insured and uninsured mortgage rates. As the mortgage is insured against losses, your mortgage lender is more willing to offer a lower mortgage rate.
In most cases, a high-ratio insured mortgage will have a mortgage rate that is lower than a low-ratio mortgage with a down payment greater than 20%. Why bother saving up for a large down payment if you can make a small down payment and get an even lower mortgage rate? The answer lies in the cost of the mortgage default insurance, which isn’t free.
CMHC insurance premiums can add thousands of dollars to the cost of your mortgage. The cost of this mortgage default insurance will either need to be paid upfront or it will be added to your mortgage principal balance. Adding the cost of the mortgage insurance to your principal means that you will be paying interest on the insurance over time, adding on to the cost of your mortgage. The CMHC insurance premium will depend on the size of your down payment.
|Down Payment||CMHC Insurance Premium|
|5% - 9.99%||4.00%|
|10% - 14.99%||3.10%|
|15% - 19.99%||2.8%|
You can avoid paying for mortgage insurance by making a down payment that is 20% or more. This would be equivalent to a LTV of 80%. A down payment of 35% or more (which would be a LTV of 65% or less) can also give you access to lower mortgage rates.
For example, a 5% down payment might give you a mortgage rate of 2%, but you'll have to pay for mortgage insurance. A 20% down payment might have a mortgage rate of 2.4%, and a 35% down payment might have a mortgage rate of 2.15%. Insured mortgages might have a slightly lower mortgage rate, but the difference is reversed when you add in mortgage insurance costs that the borrower pays.
Let’s look at the monthly cost for a $500,000 home with a 5-year fixed term, 25-year amortization, and monthly payments.
|Down Payment||Mortgage Balance||Mortgage Rate||Total Interest after 5-Years||Monthly Payment||CMHC Insurance Premium|
To see the difference more clearly, let’s look at the difference between a 19% down payment for an insured mortgage and a 20% down payment for an uninsured mortgage.
|Down Payment||Mortgage Balance||Mortgage Rate||Total Interest after 5-Years||Monthly Payment (including CMHC premium)||CMHC Insurance Premium|
In this example at these fictional interest rates, there is little difference between making a 19% down payment for an insured mortgage or a 20% down payment to make it uninsured. The added CMHC premiums compensate for the difference in mortgage interest rates. If the difference in mortgage rates was smaller, an uninsured mortgage would have been better.
However, if you’re able to afford to make a large down payment, your total interest paid and your monthly mortgage payments will be much smaller.
Having a bad credit score won’t just cause you to have higher mortgage rates, but it can also make you ineligible for certain mortgages. CMHC mortgage rules require borrowers of high-ratio insured mortgages to have a credit score of at least 600. If your credit score is below 600, you won’t be able to get an insured mortgage.
Generally, the minimum credit score for a mortgage from a major bank is 600. Borrowers with bad credit scores will usually need to get a mortgage from a private mortgage lender or B lenders, which are non-traditional lenders that have less strict requirements. You’ll need to have a down payment that is larger than 20% for a B lender mortgage or a private mortgage. Private mortgage rates are also quite high in comparison to a mortgage from a bank. However, B lenders can still offer competitive rates. For example, credit union mortgage rates can often be lower than mortgage rates from the big banks.
For newcomers to Canada with no Canadian credit history, some major banks offer newcomer programs that allow those with no credit history to get a mortgage.
Having an established credit history and a good credit score can give you access to lower mortgage rates. It’s a good idea to monitor your credit report to make sure that it’s accurate and to look out for any negative credit data, such as missed bill payments. Missed payments can stay on your credit report for years, which can make it harder to qualify for a mortgage at a favourable mortgage rate. There are plenty of ways to check your credit score for free in Canada too. Working to improve your credit can save you thousands of dollars in interest through a lower mortgage rate.
Did you know that almost half of all homebuyers in Canada used a mortgage broker to negotiate their mortgage? The 2019 CMHC Mortgage Consumer Survey found that 47% of buyers in 2019 used a mortgage broker to get their mortgage. The most common reason for homebuyers to use a mortgage broker is to get a lower mortgage rate, but mortgage brokers also provide other benefits.
Brokers can help you save time, they can help give you advice on what type of mortgage would be right for you, and they can also help you if you have a special circumstance, such as if you’re buying an unusual property, rely on self-employment income for a mortgage, or if you have a low credit score. You might also need to use a broker in order to get a mortgage from some B lenders and private lenders.
Working with a mortgage broker is a great way to have access to multiple mortgage lenders and to have someone working on your behalf to get you the best possible mortgage rate. However, some brokers might not work with specific mortgage lenders, and it isn’t guaranteed that they’ll be able to find a low mortgage rate for you.
Having a mortgage broker doesn’t mean that you shouldn’t do any research or try to compare mortgage rates yourself. In fact, 87% of Canadians compared mortgage rates online before buying a home, with almost half of Canadians using both a mortgage broker and contacting mortgage lenders themselves. Using this page to source mortgage rates from different lenders is a great way to start your mortgage search.
You might be able to directly ask a bank to match the mortgage rate that a broker gives. Brokers might not always be able to find the lowest mortgage rates either. If you’re working with a mortgage broker but have found a better mortgage rate directly from a bank, you’re not obligated to complete the transaction with your mortgage broker. You can ask your broker to try to match or get a better rate, but that might not always be possible.
|Bank or Lender||Annual Prepayment Limit||Frequency (per year)|
|Varies, up to 20%||Once|
|Varies, up to 20%||Once|
|20% (10% for BMO Smart Fixed Mortgages)||Once|
|15% - 20%||Once|
|Varies, up to 20%||Multiple|
|Varies, up to 20%||Multiple|
For fixed-rate mortgages, lenders usually use the greater of three months of interest or an interest rate differential (IRD). Each lender has their own IRD calculation. The interest rate that they use for their IRD is usually based on either their current advertised mortgage rates or their posted rates, which can often be much higher.
|Advertised Rate IRD||Posted Rate IRD|
Most lenders determine the mortgage break penalty for a variable rate mortgage by calculating three months of interest. The interest rate that they use can depend from lender to lender, but is usually either your current mortgage interest rate or the lender's prime rate.
|Based On Your Mortgage Rate||Based On the Lender's Prime Rate|
The amortization period is the total length of time over which you plan to pay off your mortgage. The longer your mortgage’s amortization period, the smaller each of your mortgage payments will be. A long amortization period means that you will be spreading your mortgage payments out over a longer period of time. While your scheduled payments will be smaller, it does mean that you will be paying interest for a longer period of time. A longer amortization period will increase your total cost of borrowing.
A shorter amortization means that you will be paying off your mortgage faster. Having your mortgage paid off more quickly means that you will save on interest costs, but your mortgage payments will have to be larger.
While we cannot give advice for your specific situation, here are some general guidelines:
When deciding between a short amortization or a long amortization, you will need to take into account your financial situation. A long amortization means that your individual mortgage payments will be smaller, which might allow you to qualify for a larger mortgage amount based on your future debt service ratios. Likewise, higher mortgage payments from a shorter amortization may reduce the mortgage amount that you can afford.
You won’t be able to get a CMHC-insured mortgage if your amortization is more than 25 years. While your monthly mortgage payment might be higher with an amortization that is 25 years or less, you’ll be able to make a smaller down payment that can be as low as 5%. Otherwise, you’ll need to make a down payment of at least 20% for an uninsured mortgage with an amortization greater than 25 years.
You can use our mortgage amortization calculator to see how changing your amortization period can affect the cost of your mortgage. For example, the table below compares the cost of a mortgage and the amount of each monthly mortgage payment for different amortization periods.
|20 Year||25 Year||30 Year|
|Fixed Mortgage Rate||2%||2%||2%|
|Monthly Mortgage Payment||$2,529||$2,117||$1,848|
|Total Interest over Amortization||$107,060||$135,176||$165,315|
When comparing 20-year and 30-year amortizations to the 25-year amortization at a 2% mortgage rate:
If you can handle higher monthly mortgage payments, a shorter amortization period can save you thousands of dollars. Many banks and mortgage lenders also allow you to shorten your amortization period by making additional mortgage prepayments, such as through lump-sum principal prepayments, doubling your regular payment amount, and increasing your payment schedule.
The payment frequency determines how often you will make mortgage payments.
While we cannot give advice for your specific situation, here are some general guidelines:
More frequent mortgage payments means that each mortgage payment will be smaller. However, mortgage payments do not scale linearly. For example, a bi-weekly mortgage payment amount is not exactly half of a monthly mortgage payment amount. Instead, bi-weekly payments are slightly less than half of a monthly payment.
For example, for a $500,000 mortgage with a 25-year amortization and a mortgage rate of 2%, a monthly payment would be $2,117, while a bi-weekly payment would be $977.
A bi-weekly payment of $977 is equivalent to paying $1,954 per month, but choosing a mortgage with a monthly payment frequency will require a monthly payment of $2,117. That’s because with bi-weekly payments, you’ll be making 26 bi-weekly payments per year. That is equivalent to 13 months of mortgage payments per year, accelerating your payment schedule. Your more frequent payments will also reduce your mortgage principal faster, allowing you to save on interest and pay down more off your principal with each payment.
For example, 12 months of $2,117 monthly payments will result in roughly $25,400 being paid in a year.
26 bi-weekly payments of $977 will result in roughly $25,400 being paid in a year. The total amount paid per year is the same.
The table below compares monthly payments, bi-weekly payments, and weekly payments for a mortgage’s total cost of interest for a 25-year amortization at a 2% mortgage rate.
|Fixed Mortgage Rate||2%||2%||2%|
|Monthly Mortgage Payment||$2,117||$977||$488|
|Equivalent Monthly Payment||$2,117||$1,954||$1,952|
|Total Interest over Amortization||$135,176||$134,166||$134,009|
There are slight interest savings to be had from increasing your mortgage payment frequency. This keeps your mortgage amortization the same, which is why you won’t realize as much interest savings.
Many mortgage lenders offer accelerated payment frequencies, such as accelerated bi-weekly and accelerated weekly mortgage payments. With accelerated payments, you will be paying the equivalent monthly payments, which means that you will be making an extra payment per year. In the above table, a monthly payment would have been $2,117.
To calculate the accelerated bi-weekly payment amount, you would divide $2,117 in half to get $1,058.50. Your accelerated bi-weekly payments will be $1,058, higher than the regular bi-weekly amount of $977. This increased amount allows you to pay off your mortgage faster, which shortens your amortization and saves you interest.
|Monthly||Accelerated Bi-Weekly||Accelerated Weekly|
|Fixed Mortgage Rate||2%||2%||2%|
|Monthly Mortgage Payment||$2,117||$1,058||$529|
|Equivalent Monthly Payment||$2,117||$2,117||$2,117|
|Total Interest over Amortization||$135,176||$120,263||$120,112|
Switching to accelerated bi-weekly and accelerated weekly payments can save you thousands of dollars over the life of your mortgage. At the same time, you’ll also still be paying the same amount each month as a regular monthly mortgage payment.
The term of your mortgage is the length of time for which you sign a legal agreement with your lender. For the length of the term, you are obligated to their conditions and penalties.
The most common term length in Canada is 5 years. Unless you have specific concerns, a 5-year term generally works well. Longer terms will have higher mortgage rates, which can be bad for those struggling to pass the mortgage stress test as you may be tested at a higher mortgage rate. This is a particularly significant issue for homebuyers in Toronto’s housing market or in Vancouver’s housing market. However, you won’t have to worry about requalifying for a mortgage as often as a short mortgage term. Each lender will offer different options for term length and rates; contact your lender or broker for more details.
The interest rate determines how much interest is added to the unpaid portion of your mortgage loan.
A higher interest rate can significantly increase your monthly or bi-weekly payment, as well as inflate the term and lifetime cost of your mortgage. Conversely, a lower interest rate can save you tens of thousands of dollars over time.
Your variable interest rate is directly controlled by your lender via their Prime Rate. Each lender can choose to increase or decrease their own prime rate, in turn increasing or decreasing your variable interest rate.
Lenders will usually adjust their prime rate to reflect changes in the Bank of Canada’s Policy Interest Rate. This means that lenders will tend to have similar or identical prime rates. All major Canadian banks currently have a prime rate of 2.45%.
Variable rates allow you to take advantage of future decreases in interest rate. On the other hand, fixed rates are preferable if interest rates rise in the future. Unfortunately, long-term fluctuations in the prime rate are difficult if not impossible to predict.
However, a 2001 study found that between 1950–2000, choosing a variable interest rate resulted in lower lifetime mortgage cost than a fixed rate up to 90% of the time. According to the study, if you are comfortable with the risks involved, a variable rate may reduce your long-term mortgage cost.
Mortgage default insurance, also known as Canada Mortgage and Housing Corporation (CMHC) Insurance, protects your mortgage lender in the case of default.
Under Office of the Superintendent of Financial Institutions (OSFI) regulations, you are required to purchase CMHC insurance if your down payment is below 20%.
You may be ineligible for CMHC insurance if:
In these cases, you must make a down payment of 20% or higher.
Your CMHC insurance cost is calculated as a percentage of your purchase price. The exact percentage depends on your down payment amount, and decreases for larger down payments.
Since March 17, 2017, the following CMHC premiums apply in most situations:
|Down Payment (% of Purchase Price)||5–9.99%||10–14.99%||15–19.99%|
|CMHC Insurance (% of Mortgage Amount)||4.00%||3.10%||2.80%|
Your lender is actually the party responsible for paying CMHC insurance costs. In the majority of cases, your lender will pass these costs down to you by adding the CMHC insurance premium to your mortgage loan amount. This will slightly increase your monthly or bi-weekly payment.
In some cases, your lender may allow you to pay CMHC insurance costs as a lump-sum, or not pass down the cost to you at all. Contact your lender for more details.
A mortgage with a down payment below 20% is known as a high-ratio mortgage. The term ratio refers to the size of your mortgage loan amount as a percentage of your total purchase price.
All high-ratio mortgages require the purchase of CMHC insurance, since they generally carry a higher risk of default.
You may often notice a significant difference in mortgage rates between open and closed mortgages. Open mortgages allow you to make principal prepayments at any time without any charges or penalties, which makes it very flexible. This flexibility is counterbalanced by open mortgage rates being higher than closed mortgage rates.
Choosing a closed mortgage can let you access much lower mortgage rates at the risk of prepayment penalties if you go over your lender’s annual prepayment limit. Things like selling your home or a mortgage refinance can cause you to have to pay significant prepayment penalties. This could be avoided with an open mortgage, but you’ll have to pay a higher mortgage rate.
The Smith Maneuver allows you to deduct interest paid on your mortgage from your income, which will reduce your income taxes. To learn more about how you can use a HELOC to reduce your mortgage interest costs, visit our Smith Maneuver page.
It’s important to know your rights as a mortgage borrower. When applying for a mortgage, your lender must provide information such as your mortgage principal amount, your mortgage interest rate, your annual percentage rate (APR), term, payments, amortization, prepayment privileges and charges, and other fees. This can be provided in an information box in your mortgage agreement.
Changes to your mortgage agreement will need to be made in writing within 30 days, or it can be disclosed electronically. Your lender must also give you a renewal statement at least 21 days before the end of your term, or let you know if they will not be renewing your mortgage. If your lender is a member of the Canadian Banking Association, which includes most major banks operating in Canada, your lender may have agreed to provide additional information, such as online financial calculators or other information that can be used to calculate mortgage prepayment charges.
Your lender also has rights, such as the right to inspect your title or the right to sell your home if you don’t make your mortgage payments.
You also have responsibilities as a mortgage borrower. It's important to carefully read your mortgage agreement and ask your lender questions if you don't fully understand any terms or conditions.
The mortgage industry is well established in Canada, with thousands of mortgage brokerages across the country. Mortgage Professionals Canada, the industry's trade association, has over 13,000 members and accounts for 35% of all mortgages in Canada.
In Ontario alone, mortgage brokerages arranged $131.4 billion in mortgages in 2018, from 2,649 mortgage brokers and 11,708 mortgage agents.
The massive volume that mortgage brokers process comes to no surprise, as Canada’s outstanding mortgage debt approached $1.5 trillion in 2021, growing by almost $18 billion in one month in April 2021.
Mortgage protection insurance or creditor insurance is completely optional, and it covers your mortgage balance or mortgage payments under certain circumstances. You do not need to buy mortgage protection insurance even if you make a down payment less than 20% for a CMHC default-insured mortgage. It’s illegal in Canada for a mortgage lender to require you to purchase mortgage protection insurance as a condition to being approved for a mortgage.
Mortgage protection insurance products can either cover your mortgage balance or your mortgage payments. This helps to protect you if you are unable to make your mortgage payments, or can help your family if you happen to pass away. Mortgage insurance is different from home insurance, which covers your property and possessions, and can provide liability coverage.
Similar to regular life insurance, mortgage life insurance pays out a death benefit when you pass away. This benefit is tied to your mortgage balance, and can cover up to 100% of your balance. You can choose to cover only a partial amount of the balance, such as 50% of the balance.
As you pay off your mortgage, your mortgage balance decreases. However, your mortgage life insurance premium is usually fixed and is based on your mortgage balance on the date that you applied for mortgage life insurance. This means that your mortgage life insurance premium stays the same, while your maximum coverage benefit is reduced over time.
With mortgage life insurance, your mortgage lender will be the beneficiary of the insurance policy. That’s because the benefit will be used to pay off some or all of your mortgage balance. With regular life insurance, you can choose your beneficiary, and your coverage won’t decrease over time.
Many lenders have different maximum coverage limits for their mortgage life insurance products. If your mortgage balance is over the maximum insurable limit, your mortgage life insurance policy will only pay out up to the maximum limit.
|TD||Canada Life Assurance Company||$1,000,000|
|Scotiabank||Canada Life Assurance Company||$1,000,000|
|RBC||Canada Life Assurance Company||$750,000|
|CIBC||Canada Life Assurance Company||$750,000|
|BMO||Sun Life Assurance Company of Canada||$600,000|
|HSBC||Sun Life Assurance Company of Canada||$750,000|
|MCAP||Sun Life Assurance Company of Canada||$750,000|
|First National||The Manufacturers Life Insurance Company (Manulife)||$1,000,000|
|National Bank||National Bank Life Insurance Company||$1,000,000|
For most mortgage life insurance policies, you will need to be under the age of 64 to be eligible to apply. Your mortgage life insurance will be active until you refinance or sell your home, at which point your insurance coverage will end. If you're over 64 years of age and your insurance coverage ends, you may be eligible to re-apply if your new mortgage has a similar balance under recognition of prior coverage (ROPC).
Your mortgage life insurance premium will depend on your age and mortgage balance at the time of application. Your monthly premium rate is calculated as a premium rate for every $1,000 of mortgage balance that you want to insure. You will also have to pay provincial sales tax on your monthly insurance premiums, if applicable.
Generally, you will have to pay mortgage life insurance premiums for each borrower on the mortgage that you want to insure. Some banks offer lower joint-borrower premiums, or offer a multi-insured discount. For example, TD offers a 25% premium discount if there is more than one borrower that gets insurance for the same mortgage. However, you’ll need to pay for two individual premiums.
Some lenders also offer a discount for larger mortgage balances. TD provides a 25% discount for insured mortgage balances between $300,000 and $500,000, and a 35% discount for insured mortgage balances between $500,000 and $1,000,000.
Your cost of mortgage life insurance is based on the insured mortgage balance. For example, if your premium rate is $0.32 per $1,000 of mortgage balance, and your mortgage balance is $500,000, then your cost of mortgage life insurance will be $160.00 per month.
|18 to 30||$0.13||$0.08||$0.11||$0.09||$0.09*|
|31 to 35||$0.17||$0.13||$0.15||$0.13||$0.13*|
|36 to 40||$0.24||$0.20||$0.22||$0.20||$0.20|
|41 to 45||$0.32||$0.29||$0.33||$0.29||$0.29|
|46 to 50||$0.46||$0.43||$0.44||$0.40||$0.41|
|51 to 55||$0.56||$0.64||$0.55||$0.52||$0.55|
|56 to 60||$0.79||$0.82||$0.74||$0.70||$0.70|
|61 to 65||$1.06||$0.97||$1.09||$0.95||$0.99|
|66 to 69||$1.66||-||$1.54||$1.63||$0.99|
Mortgage critical illness insurance provides a benefit if you suffer a life-threatening issue, such as cancer, heart attack, or stroke. Critical illness insurance usually has a smaller coverage benefit, and it has slightly higher premiums. Some policies might not cover pre-existing conditions up to 24 months before the start of your coverage. You might also need to complete a health interview.
|TD||Canada Life Assurance Company||$1,000,000|
|Scotiabank||Canada Life Assurance Company||$500,000|
|RBC||Canada Life Assurance Company||$300,000|
|CIBC||Canada Life Assurance Company||$500,000|
|BMO||Sun Life Assurance Company of Canada||$450,000|
|National Bank||National Bank Life Insurance Company||$150,000|
Similar to mortgage life insurance, your cost of critical illness insurance is based on the insured mortgage balance. For example, if your premium rate is $0.45 per $1,000 of mortgage balance, and your mortgage balance is $500,000, then your cost of disability insurance will be $225.00 per month.
If your maximum coverage amount is less than your mortgage balance, then your mortgage balance is only partially covered. Once your mortgage balance falls below the maximum coverage amount, then your mortgage balance will begin to be fully covered.
For example, National Bank’s critical illness insurance has a maximum coverage of $150,000. If you have a mortgage balance of $500,000, your insured amount is $150,000. You are only charged insurance premiums on the insured amount of $150,000, not your full mortgage balance of $500,000. Your insured amount will decrease as your mortgage balance decreases.
Insurance benefits and payouts are not taxable. This means that if you are eligible for a critical illness claim and your insured amount was $150,000, then a maximum of $150,000 will go towards paying down your mortgage balance.
|18 to 30||$0.14||$0.10*||$0.13||$0.10||$0.09*|
|31 to 35||$0.19||$0.17*||$0.18||$0.13||$0.13*|
|36 to 40||$0.26||$0.27||$0.27||$0.24||$0.20|
|41 to 45||$0.45||$0.45||$0.47||$0.44||$0.41|
|46 to 50||$0.69||$0.68||$0.70||$0.66||$0.66|
|51 to 55||$1.02||$1.01||$1.04||$0.99||$1.02|
|56 to 60||$1.82**||$1.65||$1.85||$1.69**||-|
|61 to 65||$2.32**||$2.40||$2.22||$2.49**||-|
|66 to 69||$2.65**||$2.70||-||$2.79**||-|
Mortgage disability insurance can cover some or all of your regular monthly mortgage payments if you become disabled or get any medical condition that stops you from working.
For some disability insurance policies, you may need to have been disabled for at least 60 consecutive days before you are eligible to receive any benefit. Some insurers have shorter waiting periods. You won’t receive any benefits during this period.
You might also be limited to disability benefit payments for up to 24 months. If you become disabled within 6 months of your previous disability claim, the benefit payments will count towards your 24 month maximum limit.
Your cost of disability insurance is based on your age and as an amount of your current mortgage payment that you want to insure. Your mortgage payment that can be insured include your mortgage principal, mortgage interest, and mortgage life insurance premium payments.
Some lenders also offer mortgage job loss insurance. This can be bundled with mortgage disability insurance, such as with CIBC’s Mortgage Disability Insurance Plus.
For example, if your premium rate is $2.84 per $100 of mortgage payment, and your monthly mortgage payment is $2,000, then your cost of disability insurance will be $56.80 per month.
|Lender||Maximum Monthly Payment Coverage||Maximum Months of Benefits||Waiting Period|
|Scotiabank||$3,500/month||24 months||60 days|
|RBC||$3,000/month||24 months||60 days|
|CIBC||$3,000/month||24 months||60 days|
|BMO||$3,000/month||24 months||30 days|
|National Bank||$3,000/month||24 months||60 days|
|HSBC||$4,000/month||24 months||60 days|
|MCAP||$4,000/month||24 months||60 days|
|First National||$10,000/month||24 months||60 days|