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Rates in Canada

As of Thursday, August 28, 2025, Canada’s most popular mortgage options are the 5-year fixed and 5-year variable conventional rates. The average 5-year fixed rate is 4.71%, while the average 5-year variable rate is 4.67%. Many borrowers favour these terms for offering a balance of stability and flexibility. Conventional rates for borrowers with a 20 percent down payment are typically slightly higher than insured rates but provide greater freedom and eliminate the need for default insurance.

Below are the current average conventional mortgage rates available across Canada, including in Ontario, Québec, British Columbia, and Alberta:

• 2-year fixed conventional mortgage rate: 5.05%
• 3-year fixed conventional mortgage rate: 4.77%
• 3-year variable conventional mortgage rate: 5.50%
• 4-year fixed conventional mortgage rate: 5.27%
• 5-year fixed conventional mortgage rate: 4.71%
• 5-year variable conventional mortgage rate: 4.67%
• 7-year fixed conventional mortgage rate: 5.76%
• 10-year fixed conventional mortgage rate: 6.78%

Canada’s average posted 5-year conventional fixed mortgage rate is 5.52%. The lowest 5-year fixed rates are typically reserved for insured prime lending, with nesto at and the national average at 4.71%.

Canada’s variable and adjustable rate discounts (or added premiums) on the 5-year term typically range from 0.50% to 1.50% from the Bank prime rate, currently at 4.95%. The most discounted variable and adjustable rates are generally reserved for insured prime lending, with nesto at and the national average at 4.67%.

Canada’s average posted 3-year conventional fixed mortgage rate is 5.69% . The lowest 3-year fixed rates are typically reserved for insured prime lending, with nesto at and the national average at 4.77%.

Canada’s variable and adjustable rate discounts (or added premiums) on the 3-year term range from 0.15% to 1.50% from the Bank prime rate, currently at 4.95%. The most discounted variable and adjustable rates are generally reserved for insured prime lending, with nesto at and the national average at 5.50%.

Below are insured mortgage rates available across Canada:

• 2-year fixed insured mortgage rate:
• 3-year fixed insured mortgage rate:
• 3-year variable insured mortgage rate:
• 4-year fixed insured mortgage rate:
• 5-year variable insured mortgage rate:
• 5-year variable insured mortgage rate:
• 7-year fixed insured mortgage rate:
• 10-year fixed insured mortgage rate:

Choosing a shorter mortgage term is advisable if you anticipate that interest rates in Canada will decrease. A shorter term would allow you to renew your mortgage again at even lower interest rates. However, if your expectations are unmet, you may be in for a stark surprise with a need to renew at higher interest rates. Generally, experts suggest shorter terms when rates are expected to decline, whereas longer terms are more appropriate when rates are predicted to rise. 

The bond market expects rates to decline in the fall, indicating that we’re approaching the peak of the rate cycle. As a result, fluctuating rates, such as adjustable or variable mortgage rates, may be a more suitable option. The Bank of Canada might face pressure to lower interest rates in light of the recent cuts by the Federal Reserve.

A slowdown in the US economy could have adverse effects on Canada, given its significant dependence on US trade. The Bank may contemplate reducing rates to avoid a widening interest rate gap that could weaken the Canadian dollar and raise import costs. A downturn in the US economy could decrease Canadian exports and GDP, prompting similar cuts to encourage growth. However, if domestic inflation continues to be a concern, the Bank may decide to keep its rates steady despite the reductions in the US.

This news should prompt you to make a decision based on your preferences. If you are looking for stability and predictability over a more extended period, then opting for a 5-year fixed rate is the best option. If you want to reduce your risk while saving money, choosing a 3-year fixed rate may help you overcome this uncertainty until you can get a lower, fluctuating rate. If you’re okay with risk and don’t mind if your mortgage payment rises before it falls, opting for a variable or adjustable rate might be better. If you’re risk-averse, we suggest locking into today’s lower fixed rates, providing the certainty you want over your 5-year term. 

The most important consideration is your financial plan and mortgage strategy. If your long-term plan involves moving out of Canada or expecting an inheritance you’d like to use to pay off your mortgage sooner, you should choose a shorter term. Find a lender with suitable mortgage porting terms if you wish to switch homes before your term ends.

Bonds, specifically Canada Mortgage Bonds (CMBs), are considered mortgage-backed securities (MBS). Bonds are debt securities issued by governments, such as the Government of Canada, to fund its growth and projects, including homebuilding and homebuying activity. Institutional investors and pension funds purchase bonds from the government, receiving interest payments until the bond matures. 

If interest rates rise in Canada, the prices of existing bonds typically decrease, even if the coupon rates remain unchanged, resulting in higher bond yields. On the other hand, if interest rates in Canada decrease, the prices of existing bonds typically rise, with the coupon rates remaining constant, resulting in lower yields on those bonds.

The 5-year fixed mortgage rates in Canada follow 5-year Canadian bond yields plus a spread set by the banks. Bond yields can change direction based on market sentiment and economic factors like inflation and employment. While this won’t change your rate if you’re already locked into a 5-year fixed rate, it can change interest rates for new 5-year fixed mortgages. Simply put, mortgage rates follow the direction of bond yields, with an additional 1 to 2% spread to cover the lender’s risk premium and funding costs.

Economists and policymakers predict that slightly more than $900 billion worth of mortgages may experience payment shock at renewal. This accounts for around 60% of all mortgages held at chartered banks set to be renewed from 2024 to 2026. Most Canadians are expected to renew their mortgages in 2026, with about $400 billion, or 26% of chartered bank mortgages, up for renewal.

According to CMHC, approximately 2.2 million Canadian mortgages, or around 45% of all outstanding mortgages, are expected to be renewed between 2024 and 2025. When these borrowers renew their mortgages, interest rates will be significantly higher, as many of these mortgages were secured at record-low interest rates between 2020 and 2021 during the pandemic. 

According to CMHC, approximately $2 trillion in mortgage debt needs to be repaid. In 2023, only 5% of this debt was up for renewal. This year, 13% of the debt is scheduled for renewal. However, the percentage is expected to increase significantly in the coming years, reaching 23% in 2025, 31% in 2026, and 21% in 2027.

The Great Renewal is a term coined by nesto to refer to the massive number of Canadian mortgages expected to be renewed between 2025 and 2029. 

At the onset of the pandemic, homeowners took advantage of low mortgage rates to renew or refinance their existing mortgages. Over 30% of homeowners chose to renew into a variable rate instead of the historically popular fixed rate. As mortgage rates were historically low for most of 2020 and 2021, many homebuyers could qualify for a higher mortgage amount to enter the surging real estate market, especially on a variable rate, as these rates were lower than fixed rates at the time.

Policymakers and analysts expect approximately 100,000 mortgages to come up for renewal in 2025 and 2026. Mortgage interest rates are expected to stay elevated, creating payment shock at renewal time for those borrowers.

A mortgage is a loan used to purchase property, which acts as security for the loan. A mortgage typically involves a large sum and is usually paid off over 25 or 30 years. Even though the property is the collateral, the borrower retains ownership while paying off their mortgage.

A mortgage rate, or the mortgage interest rate, is the percentage of interest you’ll pay on your borrowed mortgage amount throughout your mortgage. Canadian mortgage rates can be fixed, staying the same for the term, or variable, fluctuating based on a discount from the benchmark interest rate. The benchmark interest rate is typically the lender’s prime rate for variable rates, which is usually based on a premium added to the Bank of Canada’s (BoC) key policy interest rate.

Canada’s best 5-year fixed and 5-year variable mortgage rates are and . Canadian mortgage rates vary depending on different factors such as the borrower‘s credit, the property for which is being used as collateral, the borrower’s income capacity (to service the debt), the borrower’s capital (in the form of savings/investments and down payment), and most importantly, the conditions. Conditions such as the purpose of the loan and the loan-to-value (LTV) ratio have the most significant impact on the rate.

Nesto’s dynamic pricing ensures you always see the most current mortgage rates as they change in real-time. Every time there is movement in the pricing of rates within the capital markets, which is the part of the financial system where lenders, investors, and institutions trade investments and debt, nesto’s technology automatically updates your available rates.

This approach is supported by nesto’s dedicated capital markets division, which continuously sources the most competitive funding options for mortgages across Canada. Combined with our advanced technology platform, it means you do not have to negotiate or wait to get the best rate. The rate you see on nesto’s platform is transparent, up-to-date, and reflective of actual market conditions, so you can make decisions confidently knowing you are getting the most accurate pricing available.

Fixed rates are based on the bond market and can fluctuate more regularly, although once you have locked in your fixed rate, you’ll pay the same interest throughout your term.

Variable mortgage rate discounts are based on short-term bonds, treasury bills and sovereign debt ratios. Variable mortgage rates in Canada will fluctuate regularly. These factors remain unimportant to the borrower once they lock in their discount from their lender’s prime rate. Their rate will fluctuate as often as the Bank of Canada (BoC) updates its key policy overnight rate, which each lender will match by adjusting its prime lending rate.

Nesto and most chartered banks follow suit on changes to their prime rate, typically overnight, when the BoC changes its key policy overnight rate.

Pre-approvals and pre-qualifications are analyses of your borrowing capacity, considering your income, credit, financial conditions, down payment, savings, and net worth, minus the down payment and closing costs. They do not consider the collateral (or property) as they are assessed before finding a subject property. Pre-qualifications do not have a rate or discount attached to your qualification, such as in the case of a variable rate.

A rate hold will give you peace of mind while shopping for a property in the case of a pre-approval. Pre-approvals with rate holds will incur a cost to the lender for holding the money at a specific rate/discount. Some lenders that offer the best rates do not provide pre-approvals with rate holds; conversely, they offer pre-qualifications without rate holds to keep the cost of buying money down for live mortgages, where clients have an accepted offer on a property.

Most lenders that offer a pre-approval with a rate hold will attach a premium to this rate, meaning that if you return to that lender, you will be locked into that higher rate even if rates stay down. Therefore, lenders with the best rates offer only live rates, which can only be locked in once you have an accepted offer on a specific property.

Depending on the rate offered, lenders will typically hold your rate for a set period, typically 60 to 180 days. Most lenders will add a premium to lock in a longer term. Sometimes, lenders advertise or offer a quick close rate, meaning the mortgage can be funded within 45 or 60 days. The quick close rate is a special offer with a limited supply of money at that rate.

A mortgage rate hold allows clients to lock in a rate at either the pre-approval or the renewal /refinance stage. Once you’re qualified and your mortgage is approved, the lender will issue a mortgage commitment to you, which will either lock in a fixed mortgage rate or offer a discount from their prime rate on a variable or adjustable mortgage.

With up to 150 days, mesto currently offers Canada’s longest rate hold period for new mortgages, including those being switched and transferred from other lenders.

Canada’s most common mortgage term is 5 years, specifically the 5-year fixed-rate mortgage. While this isn’t always the most economical option for everyone, it has become the most popular.

A lot can happen in 5 years, so consider your future goals when selecting each mortgage term. If you plan to break your mortgage early, you could face some high early payout penalties, so consider short—and long-term goals when discussing your mortgage with an advisor.

Variable and adjustable mortgage rates have proven to save borrowers more money over time than a fixed-rate mortgage. Every borrower’s circumstances and goals differ; therefore, a mortgage expert should thoroughly discuss all current financial constraints and future considerations before determining the most suitable mortgage solution.

With a variable mortgage, the interest rate fluctuates based on benchmark rates, whereas a fixed-rate mortgage remains the same throughout the mortgage term. Given that mortgage payments always remain the same, a fixed rate benefits budgeting and offers financial stability.

Deciding on a variable or fixed rate is a question of personal choice and risk appetite. We recommend speaking with a mortgage professional to assess any material risks that may concern you over the term of your mortgage. While variable mortgages have proven more cost-effective over time than fixed mortgages, some people prefer the certainty of having the same payment throughout the mortgage term.

For a first-time home buyer (FTHB) who is adjusting to all the new bills associated with owning a home, it is recommended that they opt for a fixed rate to provide stability during the initial term of their mortgage. By making their most significant monthly obligations (mortgage, condo/maintenance/strata fees and property taxes) static amounts, they can take the time to put together a financial plan and start to put aside some money towards their emergency savings.

There are two types of variable-rate mortgages: those with static payments and those with variable or fluctuating payments. Static-payment variable-rate mortgages are called variable-rate mortgages (VRM). In contrast, variable-rate mortgages with a variable payment, where the payment adjusts in response to changes in the lender’s prime rate, are more accurately referred to as adjustable-rate mortgages (ARMs). Typically, they are both referred to as variable-rate mortgages.

While it is a personal choice whether you prefer an adjustable or variable mortgage, your decision will be influenced by the mortgage rates forecasted in the current market, your risk appetite due to that trajectory, and, of course, the need for that mortgage solution.

For instance, if you’re using this mortgage to purchase a rental or investment property, you may want a variable-rate mortgage (VRM), as your interest rate will fluctuate. This allows you to write off more interest against your rental income. The variable rate mo

rtgage type that suits you depends on your risk and situation. Many clients holding a mortgage for an inv

An investment property owner may decide to keep the interest portion of their mortgage higher than the principal portion, as interest paid on mortgages for investment properties can be used to reduce the overall income taxes on the income generated. For an investment property where the borrower’s goals, risk appetite, and cash flow allow, it may be prudent to choose a VRM. In most cases, however, where the mortgage is used for a principal residence or the borrower’s goal is to pay off the mortgage sooner, it may be wiser to choose an ARM.

A mortgage feature known as convertibility allows a variable-rate mortgage to be converted into a fixed-rate mortgage for the duration of its term. Most mortgages offer this feature, but restrictions may vary from lender to lender, so it is best to consult with your advisor to understand the specific solution you are receiving.

It is essential to understand the costs and benefits before converting your mortgage. You will want to ensure that any premium you pay for the higher fixed rate is worth it, considering the potential downside risk associated with the variable rate mortgage. Before moving ahead, you must do a cost-savings analysis between your options. The changeover should make financial sense within your mortgage term.

Taking advantage of your prepayment options, even minimally, can save you serious interest while helping pay down your mortgage faster.

The portability feature allows you to transfer your mortgage to a new property should you need to move during your term without incurring a penalty. This feature can be particularly beneficial if you have a large penalty to break your mortgage or a significantly lower rate compared to the current market, making it worthwhile to port your rate to your new mortgage.

While not the most sought-after feature, assumability can allow a buyer to take on the seller’s mortgage upon approval by your lender when they purchase your home. In most cases, this means no penalty for you and possibly a low rate for them if you don’t need that mortgage on your new home or are moving outside the country.

Convertibility is another valuable feature that exists on mortgages. This feature allows you to renew your variable-rate mortgage (VRM) or an adjustable-rate mortgage (ARM) at any point in your term to a fixed-rate mortgage early. Depending on the lender, you may be offered different options, such as renewing to a fixed rate for the remaining term only, renewing to a 5-year term only, or renewing to any term as long as the remaining term is not decreased.

Not all lenders offer all these features across their entire range of financing solutions. Some lenders will offer you features à la carte, based on how you want to price your mortgage rate. nesto makes it easy, as we offer all these features on all of our mortgages, even our limited-feature mortgages.

The lowest rate is not always the best option for everyone. Depending on your short and long-term goals for owning your home, it may be wiser to choose the mortgage solution that works best for you. The best solution for you may not necessarily be the option with the lowest rate. As the mortgage rate is priced based on the risk the borrower represents for the lender, it may be best to review the restrictions attached.

There may be restrictions tied to a hefty penalty if the borrower pays out the loan before maturity. Restrictions can take the form of features, benefits, or larger penalties than the usual 3-month interest or interest rate differential.

When opting for the lowest-rate product, you may need to forgo features such as prepayments or mortgage porting privileges. Without the ability to port, penalties on these types of lowest-rate mortgages can be very hefty, such as a percentage of the mortgage balance at the time of payout.

Please speak to one of our commission-free mortgage experts. They can show you how to save even more with a full-featured mortgage by making minor changes to your mortgage repayment plan.

Prepayment privileges allow you to make additional payments directly to reduce your principal balance. Prepayment options come in many forms and have different limitations based on your lender. However, overall, if you choose to exercise them, they will save you time and money, allowing you to become mortgage-free faster.

There are several ways you can take advantage of prepayments, including:

• Lump-sum payments – This option will come either in the form of one single lump sum up to 10%, 15%, or 20% either once a year or once a year on the anniversary date of the mortgage; or very liberally, you can make multiple lump sum payments throughout the year without exceeding the allowable amount.
• Double-up payments—This option lets you automate lump sum payments to double up and match your regularly scheduled payments. The savings will be exponential if you’re already on an accelerated payment plan.
• Increase regular payments – If you have any prepayment privileges with your mortgage, you will have a corresponding option for lump sum payments to increase your regular payments by the same percentage on the anniversary date.
• Payment frequency—This option allows you to accelerate your weekly or biweekly payments. This means that the semi-monthly payment amount is applied 24 times a year and 26 times a year for biweekly accelerated payments. In contrast, weekly accelerated payments are half the semi-monthly amount, applied 52 times a year. Although technically not considered a prepayment privilege, accelerated payments can shave off a couple of years over the life of the mortgage.

Depending on the lender and mortgage restrictions, not all prepayment privileges are standard. Most lenders will offer a full-featured mortgage that provides all privileges, and a restricted or limited-feature mortgage that offers fewer benefits. Some lenders will price a mortgage interest rate based on the number of features it provides, while others will use an a la carte approach in pricing each file individually.

nesto has some of the most simplified features available. We offer you all options on our full-featured mortgages, including making a minimum lump sum payment of as little as $100 with any of your regularly scheduled payments. 

Unlike our limited-feature mortgages, we may not offer prepayment privileges; however, the pricing is the same for all clients who qualify and get either of these mortgages. We recommend that clients discuss their short- and long-term goals with our mortgage experts to ensure their solution meets their unique needs, as not all mortgage solutions are suitable for everyone.

When comparing mortgage rates in Canada, it’s essential to examine the similarities and differences between comparable types and terms. Comparisons must be made with complementary solutions, meaning a fixed rate with another fixed rate and vice versa. The mortgage term must be well-aligned – compare a 5-year term with another 5-year term.

Then you have to look beyond the rate, the features, benefits and restrictions. Many low-rate mortgages have restrictions, such as pre-emptive qualifying criteria and prepayment penalties that are outside the norm if paid off or refinanced before the end of their term. Some restrictions go as far as to inhibit the ability to payout or renew early by adding a bona fide sale clause – meaning you can’t break the mortgage except to sell the property to an unrelated party.

The Bank of Canada (BoC) doesn’t set Canadian mortgage rates. But it does impact them directly and indirectly. The Bank sets the benchmark overnight target for the policy rate, which directly affects all the prime rates in Canada, also known as the Bank rate. When the economy is strong, the BoC could raise the policy rate to keep inflation from rising above its 2% target. Likewise, when the economy weakens, the Bank could lower the policy rate to keep inflation from falling below its 2% target.

The policy rate directly impacts all prime rates in Canada, which in turn affect all variable mortgage rates in Canada. However, fixed mortgage rates are determined by bond yields, which are priced and traded on the open market.

Bond yields can shift direction based on market sentiment and economic factors, such as inflation and employment. While this won’t affect your mortgage interest rate if you’re already locked into a 5-year fixed mortgage rate, it can change banks’ interest rates on new 5-year fixed mortgages.

Your mortgage term refers to the duration during which your mortgage agreement and rate will be in effect. Mortgage terms range from 6 months to 10 years, with 5 years being the most common term. But, just because 5 years is the most common doesn’t mean it’s right for you. Like the mortgage, choosing the term depends on your needs and goals.

A mortgage term is one of the criteria lenders use to price mortgages, so comparing pricing based on rate alone doesn’t make sense without deliberating on the correct term that best suits your needs. We recommend discussing a mortgage assessment with your mortgage professional to determine the most suitable solution for your unique borrowing situation.

The type of mortgage you select will be the most significant factor in determining your mortgage rate. Mortgage types such as adjustable, variable, fixed, open, closed, standard charge, or revolving home equity lines of credit (HELOCs) under a collateral charge are all personal choices based on your unique financial planning needs.

Open Mortgages vs. Closed Mortgages

When comparing open versus closed mortgages, for instance, it’s important to note that open mortgages are priced higher because they offer the flexibility to pay the mortgage off at any time without facing a penalty.

Variable Rate Mortgages (VRM) vs. Adjustable Rate Mortgages (ARM)

There are two types of variable-rate mortgages: those with static payments and those with variable or fluctuating payments. Static-payment variable-rate mortgages are more specifically called variable-rate mortgages (VRM); variable-rate mortgages with a variable payment, in which the payment adjusts with changes in the lender’s prime rate, are more accurately called adjustable-rate mortgages (ARM). Typically, they are both referred to as variable-rate mortgages.

The down payment size will determine your loan-to-value (LTV) ratio and whether you are required to also purchase mortgage default insurance. LTV is most important to mortgage rate pricing with insured or insurable lending criteria.

Insured Mortgages vs Insurable Mortgages

Insured and insurable mortgage rate pricing applies to properties valued at less than $1.5 million and $1 million, respectively. The amortization period is restricted to 25 years for insurable mortgages, but can go up to 30 years for insured mortgages available to FTHBs and those purchasing newly built homes. In such cases, the lender will provide a better rate as there is a lower risk of loss.

The borrower would purchase the insurance on the front end in the case of an insured purchase with a down payment of less than 20%. To offer you a lower rate, lenders can also purchase the insurance on the back end, thereby reducing the default risk on the mortgage if your down payment exceeds 20%.

An insured mortgage is qualified as such when your down payment is less than 20%. Therefore, you will need to purchase high-ratio default insurance. Although this insurance can be added to your mortgage, the taxes (PST) on purchasing this insurance are not.

Provincial Sales Tax on Mortgage Default Insurance

Upon your closing, your solicitor will collect and remit the PST on behalf of the high-ratio insurer (CMHC, Sagen, or Canada Guaranty). Once the high-ratio default insurance is purchased from one of the three default insurers, the lender’s risk is reduced, as the insurance will protect them if you default.

All things being equal, the lowest rate, in this case, will be an insured purchase or insured transfer, where default insurance was purchased with the home by the borrower.

The Cost of Default Insurance to the Lender affects your Mortgage Rate

Second, there is an insurable criterion with mortgage finance companies that does not exist with large banks. If you put down 20% or more with a purchase price of less than $1 million, with an amortization of up to 25 years, your mortgage will be priced based on an insurable sliding scale. This means the higher the down payment, the lower the mortgage interest rate.

The second-best rate applies to purchases and renewals with 35% or more equity or down payment – meaning a 65% loan-to-value (LTV) ratio will get you the second-best mortgage rate. This is because the lender will buy the default insurance on the back end, and the cost is insignificant, with 35% or more equity. The rate increases until the worst pricing occurs at exactly 80% LTV with 20% equity or down payment.

Uninsured Mortgages

Lastly, the mortgage price is highest for an uninsured mortgage, which means that either the amortization period is longer than 25 years or the property purchase price exceeds $1.5 million. In this case, the mortgage is uninsured, meaning you cannot purchase default insurance, and all the risk has defaulted back to the lender. The lender will price the mortgage rate higher than any other criteria for this higher-risk type.

If you’re buying a home you intend to live in, this is considered your primary residence and will be known as owner-occupied. If you’re purchasing an investment property you plan to rent to others, you’ll pay higher interest rates than for your primary residence. Or suppose you are buying a primary residence with a second, separate, legally registered suite. In that case, it is considered an owner-occupied rental, and you’ll have access to the lowest rates similar to those offered on a primary residence.

The logic behind your higher rate for a mortgage on a property solely for investment purposes is that if money is tight, people will pay the mortgage on their primary residence before other obligations. As such, lenders add a risk premium to mortgage rates for rental properties.

Mortgages are priced very similarly for purchases and renewals, based on the loan-to-value (LTV) ratio and other factors that influence rates, such as whether the transaction is insured or uninsurable.

Mortgage Refinances and Uninsured Purchases & Renewals

Refinances are considered uninsured transactions and, therefore, carry higher risks. Lenders price the higher risk based on the number of exceptions to their policy they will make in exchange for the risk they are taking with a specific mortgage.

Refinances can occur for many reasons. Extending your mortgage balance or amortization would be considered a refinance. Changing a mortgage covenant, such as adding or removing someone from the property’s land title, would be a refinance. Adding a HELOC by changing the registered charge on the property would be considered a refinance. Combining a HELOC and a mortgage, both separately mortgaged on the same property’s title but with different lenders, will be regarded as a refinance. Combining two separately registered collateral charges on the same property may be considered a refinance. Transferring a mortgage to a prime (A) lender from an alternative (B or private) lender will be regarded as a refinance.

Converting or Transferring a Mortgage

Mortgage conversion and porting are other transactions priced without simple, straightforward rules. When you convert a variable mortgage, either VRM or ARM, into a fixed-rate mortgage, it is called conversion, also known as an early renewal.

The lender will not give any discounts on their posted rates if you convert your variable rate into a fixed mortgage rate, as they would for acquiring new business. Any term remaining less than 5 years may be converted to maintain the original term or extend it to 5 years. This same logic applies to the early renewal of a fixed-rate mortgage.

Mortgage Portability

With mortgage portability, mortgage lenders typically give you 30 to 90 days from when your mortgage is paid out at the sale of the current property to transfer to a new one. The lender will refund the prepayment penalty once the new mortgage is closed and your current rate is transferred to the new home.

If the required mortgage you need is higher than the balance you paid out on the old mortgage, then the lender must provide you with a weighted average rate. In this case, the new rate is weighted based on the balances, considering the old rate, the mortgage paid out and ported, and the new rate based on current prevailing market rates.

The amortization period cannot exceed 30 years on the prime lending side. The maximum allowable amortization is 25 years for mortgages with a down payment or equity in the property of less than 20% at the time of renewal. You can go up to 30 years of amortization on mortgages with down payments of 20% or more. 

The longer the amortization, the lower your mortgage payment. The shorter your amortization period, the more money you save on interest over the term or life of the loan. The difference between two identical mortgages with different amortizations is the interest-carrying cost for the extended time the money is lent out.

There are multiple credit rating agencies and different types of scoring systems. The two leading credit agencies prevalent in Canada are Equifax and TransUnion. They both provide different credit scores, one of which is the 3-year running score, also known as a soft credit check.

Both agencies will also provide borrowers with a hard credit score for their complete credit history. The scoring is based on a total of 900. The hard credit score from Equifax, specifically FICO (formerly known as Beacon 9.0), is the credit scoring method used by mortgage lenders and professionals.

Hard Credit Checks

A hard credit check on your credit report does not immediately reduce your credit score. The credit rating agency will know who pulls your credit score and why. Multiple mortgage brokers or lenders completing hard credit checks within 45 days will be grouped as only one credit hit by the credit rating agency. Some credit rating points will be deducted from your credit score, but those will be reinstated with your timely bill payments over a few quarters.

Soft Credit Checks

Soft credit checks do not affect your credit score and are ideal for planning purposes. However, they don’t offer much assurance to a lender underwriting your mortgage application. At some point, the lender or broker must pull your FICO score to ensure you meet their requirements and check back on your entire repayment history.
Lenders typically have a specific minimum FICO score requirement of 680 or 720 out of 900 to offer you the best mortgage rate. Lenders will not want missed payments, especially for mortgage payments, as it will show to the lender that either you have poor budgeting or cash flow, or your monthly obligations and carrying costs exceed your income. Lenders and brokers will want to know if you have implemented any practices to prevent negative habits in the future.

Minimum Credit Requirement

The best rates, such as nesto’s, are reserved for borrowers with a FICO score of 680 or higher and no missed mortgage payments. Exceptions can be made in certain circumstances, such as missed payments resulting from a separation. During a separation, neither party could take responsibility for all the household payments, and due to unforeseen circumstances, the mortgage may have been neglected.

There is always a story, and nesto mortgage experts are willing to listen to and understand the whole story behind your credit report. If there is a reasonable explanation for missed payments, our mortgage expert will put a case together to ask for exceptions from the underwriting department on your behalf.

The stability of your income shows your capacity to carry the mortgage and any other debts, which show up as facilities on your credit bureau report. If your employment is new, your income must be established past probation. Changing employers during your mortgage financing is not advisable. Lenders will use a 2-year average on non-guaranteed income, such as hourly, bonus, overtime, contract, or self-employed income. 

Types of Income in Canada

On the A or Prime lending side, lenders can use your taxed income, but any forms of income that are not taxed will not be considered. Upon exception, up to 70% of non-taxed income could be used for qualification. If you change industries and don’t have two years of consistent income, the lender may calculate your year-to-date received income over two years to obtain a conservative value.

Canadian Income Documentation

Lenders will ask for various documents to satisfy their risk assessment. The primary documents that borrowers may need to provide include pay stubs, letters of employment, and T4 slips if they are employed. At a minimum, Business Registration or Articles of Incorporation, Notice of Assessments (NOAs), T1 Generals and 3 months of business/corporate/individual bank account histories are required for self-employed or incorporated individuals. 

To secure the best rate, you’ll need to pass a stress test to qualify for a mortgage with a prime lender. You must prove that you can afford payments at a qualifying interest rate, which is typically higher than the actual rate in your mortgage contract.

You must pass this stress test to determine whether you require mortgage default insurance. Provincially regulated credit unions are not required to qualify all mortgages on the stress test; however, they will use a higher interest rate, as they will not have access to prime lending rates on those mortgage solutions. 

Federally regulated lenders such as mortgage finance companies and banks must use the higher interest rate of either:

• 5.25%
• the contracted interest rate plus 2%

On variable-rate mortgages, both VRM and ARM, the rate you lock in during a pre-approval can change with the lender’s prime rate change. Indeed, the variable mortgage rate hold is a discount, which is being held from the lender’s prime rate, which fluctuates with the BoC’s Key Overnight Policy Rate.

If you already have a mortgage, you’ll need to pass this stress test if you:

• Refinance (refi) your home for equity take out (ETO)
• Take out a home equity line of credit

Mortgage lending ratios are the Gross Debt Service (GDS) Ratio and Total Debt Service (TDS) Ratio. As the names suggest, GDS calculates the household debts against an applicant’s qualified income, and TDS calculates the total debts against a borrower’s income. For joint applications, the qualifying ratios combine debt payments and incomes for multiple borrowers.

Typically, insured or insurable transactions, where the purchase price or assessed value is under $1.5 million (for insured mortgages or up to $1 million for insurable mortgages) and the mortgage amortization is up to 25 years, with debt ratios restricted to 39% GDS and 44% TDS. Some lenders will use different ratios due to their risk appetites. 

Uninsured Transactions in Canada

Uninsured transactions are classified as purchases or renewals where a property is valued at more than $1.5 million, the amortization period exceeds 25 years, or the transaction involves a refinance, such as when equity is being taken out or the time being extended. 

In the case of uninsured transactions, lenders will have their own risk assessment criteria and can use whatever ratios they feel comfortable with, based on the client’s unique situation. The lender can qualify the ratios and mortgage rate pricing on the file’s risk profile and the lender’s risk appetite. The money used to fund uninsured mortgages comes from their sources, rather than Canada’s mortgage bond market, which has a set of strict qualifying rules. 

Calculating Your Debt Service Ratios

GDS = (Mortgage Payment + Property Taxes + Condo Fees/2 + Hydro)/Income

TDS = (All debts in GDS calculation + all other debts) / Income

Initially, newer lenders will offer the best rates as they have to prove to the regulators and their investors that their files are impeccable. As they fund more mortgages, their risk appetite will increase. They will provide more income and lending ratio exceptions, which may affect mortgage rate pricing on individually qualified files.

Pass Your Mortgage Stress Test

You must also pass a mortgage stress test to qualify for a specific mortgage amount. This stress test essentially serves as insurance that you’ll still be able to afford your mortgage payments if interest rates rise. This higher rate is known as the mortgage qualifying rate and is set by OFSI. All mortgage applications are subject to stress testing using the higher qualifying rate, which is either the 5-year benchmark minimum qualifying rate (MQR) or the contractual mortgage rate (offered by your lender) plus 2%.

Lenders will have different channels. Some will have branches and brokers that offer their services. In contrast, others will sell directly to consumers to avoid the need to pay commissions to external salespeople and pass the savings directly to their customers.

You will need to be aware of which channel you’re working with, as pricing can vary in various channels due to the lender’s need to compensate the salesperson. You’ll also need to understand how the salesperson is compensated and how this affects your mortgage rate.

When arranging your mortgage, you should work with a qualified mortgage professional. Unlike a banking advisor who is a generalist, a qualified mortgage professional specializes in mortgages and can provide in-depth insight and knowledge as you go through the application and qualification process.

A qualified mortgage professional may be referred to by various names, depending on the province in which they are registered, such as agent, broker, sub-mortgage broker, salesperson, or mortgage associate. However, they can provide the same services, must meet the exact educational requirements, and be provincially regulated. Some provinces, such as Quebec, with its prime directive to protect consumer interests at each stage of the process, have more rigorous education and regulations than all other provinces.

At nesto, our mortgage experts concurrently hold professional designations from one or more provinces. We believe that our clients will receive the best advice and care when they speak with specialists who consistently exceed the industry standard. Is your mortgage professional licensed?