Best current mortgage rates in Canada

Does a lower mortgage rate really make a difference? Yes. A lower mortgage rate is critical for your financial well-being, particularly since mortgage rates have a significant impact on the cost of financing a home. 

While it doesn’t sound like a lot, but a 10 to 50 basis points — 0.1% to 0.5% rate drop — can have a significant impact on the cost of financing a home. For instance, if you dropped your mortgage rate from 5% to 4.5% on a $250,000 mortgage, you would save almost $22,000, over the life of the loan (all else being equal).

To protect your real estate investment and your financial goals, it’s critical to understand the value of comparison shopping for the best mortgage rates and terms. 

In fact, learning how mortgage rates impact your housing costs can help in four distinct ways. 

1. 1 Financial planning. Knowing the type of mortgage — fixed vs variable, open vs. closed — that best suits your financial goals can help you budget better, find tax-efficient savings and help you to better achieve financial stability.
2. 2 Cost of borrowing. Since mortgage rates have a direct impact on the total cost of borrowing, knowing how and when to reduce your mortgage rate is integral to keeping your borrowing costs down. By learning how to comparison shop and understanding what factors impact a mortgage rate, you can become more effective at finding ways to reduce your overall borrowing costs, while using prepayment privileges to rapidly pay down the mortgage debt.
3. 3 Interest rate risk management. Mortgage interest rates will fluctuate over time with some periods showing a great deal of volatility. Understanding how and when interest rates rise and fall can help you decide when to lock in a lower mortgage rate. This is critical to keeping your borrowing costs lower throughout the length of your mortgage. 
4. 4 Negotiation power. When you become familiar with how mortgage rates work and what influences the rates set by lenders, it becomes easier to negotiate lower rates at better terms. This leverage contributes to lower interest rates and helps free up more of your earnings to repay debts or save and invest for future goal.
   

While most home buyers will go through the process of shopping for a mortgage, buyers who opt to familiarize themselves with how mortgage rates work have the added advantage of making more informed financial decisions. 

 After steep increases in 2023, Canadian mortgage rates appear in decline and the Bank of Canada has been dropping the overnight target rate. As a result, variable mortgage rates will remain around the 5% mark, although the Bank of Canada overnight rate dropped on September 4, 2024.

A mortgage rate is the rate of interest you agree to pay when you borrow money from a lender to buy a property. The mortgage rate is expressed as a percentage of the original amount borrowed, known as the principal debt. 

“Mortgage holders lose the most money when they only shop at one lender. To speed up the process — and make it easier — borrowers can work with a mortgage broker. A broker is lender agnostic, meaning we shop the market for the best mortgage rate and term. We focus on the client needs, not the lender type."

- Jesse Abrams, founder and CEO of Homewise, a national digital homeownership platform.

Key Takeaway: If you want to find the best mortgage rates in Canada, you need to compare fixed and variable rates offered by all mortgage lenders, including traditional banks, credit unions, mono-lenders and B-lenders. 

In 2024, the federal government introduced new mortgage rules.   

Increase in the CMHC-insured mortgage cap: Effective December 15, 2024, the maximum price for a home eligible for mortgage insurance was raised from $1 million to $1.5 million. This change allows buyers to make smaller down payments (as little as 5%) on homes priced up to $1.5 million.

Introduction of 30-year amortizations for first-time homebuyers and new-build purchases: Starting December 15, 2024, first-time homebuyers, as well as buyers of new builds, will get the option of amortizing their mortgage over a 30-year period. Prior to this change, most buyers were limited to 25-year amortization periods. Increasing the amortization period to 30 years makes monthly payments more affordable for homebuyers. 

Removal of the stress test for mortgage renewals: The Office of the Superintendent of Financial Institutions (OSFI) has eliminated the need for homeowners to undergo a stress test when switching lenders at renewal. This change is expected to encourage more competition among lenders and potentially save borrowers money by allowing more competition, which translates to better rates and terms. 

With all three new mortgage rules in Canada, the aim is to create a more affordable homeownership experience, whether through better opportunities for first-time buyers or by incentivizing housing developers to create a more competitive rate environment for current homeowners.

While your financial health and your down payment help determine the rate you get on your mortgage, there are a variety of other factors that affect the mortgage market.

In general, there are six major factors that influence mortgage rates. 

1. 1 Bank of Canada’s policy interest rate. The Bank of Canada is a national bank that sets the overnight target rate — the interest rate banks charge each other for short-term loans. This target rate influences each lender’s prime rate — the basic rate charged for borrowing money. When the Bank of Canada increases the overnight target rate, this increases a lender’s cost to borrow and this increased cost is passed on to home buyers and borrowers through higher interest and variable mortgage rates. 
2. 2 Bond market. Fixed-rate mortgages are influenced by bond market yields. These yields increase when investors demand higher returns usually to compensate for rising inflation or to compete with alternative investments that could, potentially, offer better investment returns.
3. 3  Domestic economic conditions. The overall health of the Canadian economy can influence mortgage rates. When the economy is robust and growing, interest and mortgage rates can rise, in part, to capitalize on increased demand for credit and as a hedge against potential inflation. When the Canadian economy slows or retracts, interest and mortgage rates can fall, particularly when the Bank of Canada steps in with economic stimulus by lowering the overnight target rate. Keep in mind, that the Bank of Canada aims to keep inflation between 1% to 3%. Higher rates will prompt higher mortgage rates, as the BoC attempts to slow the economy down and lower inflation.
   
4. 4 Global economic conditions. Disturbances in the global supply chain can prompt shortages and inflationary pressure that can prompt rate increases. Also, global investors can influence rates as they look for investments that offer safe, competitive returns. If this results in more demand for Canadian bonds, this could lead to lower bond yields and prompt a reduction in fixed mortgage rates.
5. 5  Regulatory changes. Government and regulatory changes can greatly impact lending and borrowing costs. For example, changes in mortgage qualification rules or capital requirements — the amount of money a financial institution must keep on-hand, to meet financial obligations — will add administrative costs to lenders and increase the overall cost of providing loans.
   
6. 6 Housing market conditions. Trends in Canada’s housing market will impact mortgage rates. When there is a decline in the demand for housing, this can push housing prices and mortgage rates down. The opposite is true when housing demand increases or when supply is impacted either because of insufficient supply or increased demand. 
   

When taken together, these six factors will greatly impact Canada’s overall mortgage market; however, the specific rate you are offered will depend a great deal on the cost of your home, the size of your down payment, your debt ratios and your credit score. 

If you want to know if you’ll qualify for a mortgage at the best current mortgage rates, you’ll need to review your current financial situation. 

The biggest factors to impact your mortgage eligibility are your credit score, your income and your debt levels (often expressed as your debt-to-income ratio or DTI ratio). 

In general, lenders look for DTI ratios below 45% — meaning for every dollar earned, you spend $0.45 to pay down debt. 

For more on the DTI ratio and how to improve your chance of qualifying for a mortgage, read the Money.ca guide on Debt-to-Income Ratios.

In general, applying for a mortgage is a straightforward process. Select the best mortgage rate, verify that the loan terms match your needs, submit your documentation and application and wait for approval. 

However, collecting the paperwork required for a mortgage application can be time-consuming. To speed up the process, ask your mortgage professional for a document list and start collecting the paperwork weeks (or even months) ahead of time. For more on getting a mortgage, read the Money.ca: Mortgage 101 Guide.

Key Takeaway: Before renewing a home loan or applying for a mortgage, assess your financial situation and talk to a mortgage professional. There are helpful actions you can take in order to help you qualify for better mortgage rates. 

There are many different types of mortgages in Canada but to find the best mortgage rate at the most competitive terms, it pays to learn a few of the fundamentals. First you've got to start with the type of mortgage you want.

Fixed vs. variable mortgage rates

A key decision during the mortgage process is which type of mortgage to get. In most situations, you’ll choose between a fixed- or a variable-rate mortgage.

Fixed mortgage rates

With a fixed-rate mortgage, your mortgage interest rate remains the same throughout your loan term. For instance, if you select a 5-year fixed mortgage rate, the mortgage interest rate you pay at the beginning of your term will be the same each month for the full five years, until it’s time to renew, refinance or pay off your mortgage in full.

Fixed-rate mortgages are great for people who want a stable housing expense that allows them to budget, and for people who prefer stability over uncertainty. However, the assurance of a fixed mortgage rate means higher costs if you need to get out of your mortgage before the term officially ends with prepayment penalties associated with breaking a mortgage costing borrowers tens of thousands of dollars.

Pros and cons of a fixed rate mortgage

Variable mortgage rates

With a variable rate mortgage, the interest rate can fluctuate as mortgage rates rise and fall in response to changes in the Bank of Canada’s overnight rate. This can mean a fluctuation in how much you pay each month, or your monthly payment stays the same, but the portion that goes toward paying down the principal debt will go up or down. If the variable rate mortgage goes up,  more of your payment will be eaten up by interest. While the cost of a variable rate isn’t as certain, there are benefits. Quite often, variable rates are lower than fixed rates, plus the penalty for breaking a variable-rate mortgage is far less than the penalty for breaking a fixed-rate mortgage.

Pros and cons of variable rate mortgages

Aside from choosing between a fixed and variable rate mortgage, there are other considerations. 

Banks use their earnings from selling bonds to cover the costs and possible losses associated with selling mortgages. When demand for bonds is strong, banks feel safer lowering their fixed mortgage rates. But when bond activity drops, banks raise their fixed rates to compensate for the reduced security from dealing in bonds.

Meanwhile, variable mortgage rates are determined by changes in the Bank of Canada’s overnight rate. That’s the interest rate banks charge when they borrow money from each other. Banks use the overnight rate to establish their own prime rates, the rates they charge their most trusted customers. Variable rates move up and down when prime rates rise and fall with the BoC overnight rate.

In 2016, almost three-quarters (74%) of Canadian families with a mortgage had a fixed mortgage rate, 21% had a variable mortgage rate, and 5% had a combination of a fixed and variable mortgage rate.*

*source: Statistics Canada

Open vs. closed mortgages

Understanding the difference between open and closed mortgage products is another important step in your mortgage journey. You’ll have to choose one or the other, and your decision can greatly influence the overall flexibility you’ll have as a borrower.

Open mortgages

With an open mortgage, you can prepay any amount of your loan at any time without having to pay a penalty. Got an extra $500 this month that you’d like to put toward your mortgage? An open mortgage will allow you to do that, but you’ll pay a higher interest rate for the privilege.

Closed mortgages

With a closed mortgage, you can still prepay, but within limits set by your lender. Most lenders permit you to prepay only a certain percentage of your original or outstanding balance per year, with many capping borrowers at 15%. Closed mortgage rates are generally more attractive than rates on open mortgages.

While economic conditions and lenders strongly influence mortgage rate trends, there are actions you can take to get a lower mortgage rate. Here are five tips to help lower your mortgage rate:

The Bank of Canada (BoC) has the opportunity to change the overnight target rate — and influence interest and mortgage rates — between eight and ten times per year. During these Bank of Canada announcements, the nation’s central bank will offer insight into the factors that are impacting Canada’s overall economic growth. For mortgage holders, these BoC announcements are important as it provides insight into potential mortgage rate increases or decreases. 

How the BoC announcements impact mortgage rates

The Bank’s rate announcements will affect mortgage rates in the following ways: 

◦ Direct impact on variable rate mortgages

A change in the Bank of Canada overnight target rate will have an almost immediate impact on the prime rate — the rate banks and other lender’s charge to borrowers. Variable rate mortgages are tied to the prime rate — moving up or down in tandem with the BoC’s target rate. 

◦ Indirect impact on fixed rate mortgages

While the BoC announcement and any changes to the overnight target rate won’t immediately impact fixed rate mortgages, fluctuations in prime rate does impact fixed mortgages. That’s because investor confidence in the economy can influence demand for bonds. When investors are not confident about current or future economic conditions, this can lead to an increase in the demand for bonds, which prompts higher bond yields and a rise in fixed mortgage rates. 

How mortgage holders and home buyers should use Bank of Canada announcements

To help Canadians prepare for economic changes, the Bank of Canada releases a schedule of their interest rate announcements. On these specified dates, the BoC announces if there is a hike or cut to the overnight rate, or if the rate will remain unchanged. In very special situations, the BoC will also announce rate changes on unscheduled dates, as it did in March 2020, as a response to drastic economic situations. 

Whether you should pay attention to a Bank of Canada announcement depends on your current financial situation. In general, this is when you should pay attention: 

◦ Prospective home buyers

If you’re in the market to buy a home, paying attention to the Bank of Canada announcements is critical. For instance, knowing the current and near-term financial outlook can help you determine if locking in a pre-approval mortgage rate is a good way to hedge against rising rates. 

◦ Current variable rate homeowners

Homeowners with variable-rate mortgages — or those considering one — should pay close attention to BoC announcements as the comments released by the central bank can indicate whether future rate hikes are likely. If a rate hike is imminent, you could reduce your risk by renegotiating your mortgage and looking for a fixed rate with a new lender or a blend-and-extend mortgage with your current lender. 

◦ Current fixed rate homeowners

While BoC announcements do not have an immediate impact on fixed rate mortgages, the shifts in the overnight rate, along with the outlook provided by the BoC, can prompt economic changes that prompt a rise or fall in fixed rate mortgages. For instance, when the BoC signalled concerns about rising inflation, this prompted investors to seek out safer and better fixed-income returns and this prompted a rise in the bond market, which prompted an increase in fixed mortgage rates. That means that fixed mortgage rate holders should be mindful of the BoC’s outlook and plan accordingly. 

◦ Homeowners close to renewing their mortgage

Homeowners close to renewing their mortgage should pay particular attention to Bank of Canada announcements, as the current actions and future direction of rates can help determine if it's best to go with a variable rate mortgage or to minimize rate hike threats using a fixed rate mortgage.