The best mortgage rate available at the time you buy your home can save you tens of thousands of dollars.
Even a small change in interest rates can make a big difference in the amount of money you spend on your monthly mortgage payments.
And this means that the extra effort you put into comparing rates between lenders to find a good deal is well worth it.
Read on to find out how to find the best mortgage rates available in Canada.
The best mortgage rates in Canada
Here are the three options for finding the best mortgage rates available in Canada.
1. Use an online mortgage site like Homewise
A digital online mortgage site like Homewise simplifies the mortgage process.
Pre-approvals are seamless and you enjoy free assistance from mortgage experts until you close on your mortgage.
Homewise Mortgage Rates
Homewise works with over 30 popular lenders to find you some of the best mortgage rates or home equity loan rates. The application process takes about 5 minutes to complete and they negotiate with lenders on your behalf.
The company is licensed as a mortgage broker in Ontario, British Columbia, Manitoba, and Alberta. You can also broker mortgages in Saskatchewan, Newfoundland and Labrador, Nova Scotia, and New Brunswick.
2. Use a bank
Yes, you can find the best mortgage rate at a bank, especially if it is an online bank. Banks sometimes publish promotional rates that beat the competition. However, these are usually short-lived.
Digital banks, also known as online or virtual banks, can offer better rates than brick-and-mortar banks because they spend less on overhead and pass some of these savings on to customers in high-interest savings and low mortgage rates.
One popular online bank with great mortgage rates is Tangerine. Check out Tangerine Mortgage Rates or read our detailed review.
If you already bank with a credit union, check to see what their mortgage rates are. Compare that rate to what’s available elsewhere.
3. Use a mortgage broker
As I mentioned earlier, a mortgage broker works with multiple lenders and financial institutions, including banks, trust companies, credit unions, and more to get you a low rate.
Rather than shopping around for the best rates yourself and having multiple credit checks affect your credit score, a mortgage broker can use one credit check to give you access to multiple lenders.
Mortgage brokers offer you a free service (they are compensated by lenders) and help you with your application.
An example of a mortgage broker you can use is Intellimortgage. Another is Canwise.
Frequently asked questions about mortgages in Canada
Before you start looking for a competitive mortgage rate, you should familiarize yourself with some of the terminology that will appear. It’s important to understand these basic terms so you can choose the mortgage that’s right for you.
What is a mortgage?
A mortgage is a type of loan that you apply to buy a house.
The house serves as collateral, and you must make periodic payments to a mortgage lender until your mortgage loan is paid off in full.
Amortization vs Mortgage Term
The amortization period refers to the number of years it will take to pay off your mortgage loan in full. A typical mortgage in Canada has a 25-year amortization period.
On the other hand, the term of a mortgage refers to the period of time that you are tied up with a lender and subject to their terms and conditions, i.e. interest rates, prepayment terms and penalties, etc.
The most common mortgage term in Canada is the 5-year fixed rate.
Variable Mortgage Rate vs. Fixed Rate
A fixed mortgage rate is one that stays the same throughout the life of the mortgage. For example, a 5-year 3% fixed-rate mortgage means you’ll pay an interest rate of 3% for 5 years and it won’t change.
A variable rate mortgage varies by the prime rate your lender sets based on the prevailing loan interest rate set by the Bank of Canada.
What this means is that when the prime rate (reference rate) goes up, your mortgage rate goes up; if the prime rate falls, your mortgage rate falls.
A fixed rate offers homeowners certainty and is the most popular type of mortgage. The stability you get is often very valuable.
A variable rate can fluctuate during the term of your mortgage. However, you can save money when rates are lower. The difference between variable rate and fixed rate mortgages has narrowed in recent years.
Mortgage Broker vs Bank
Mortgage brokers are specialists who have a connection to multiple lenders. They can help you find the best rates you qualify for and assist you in the application process. Mortgage brokers often have access to mortgage loan offers that are not publicly available.
Banks offer their own mortgage products and rates that may not be competitive.
Open vs Closed Mortgage
An open-ended mortgage gives you the flexibility to pay off your entire mortgage balance at any time without penalty. This flexibility comes with a prize.
A closed-end mortgage (the most common) restricts you to the agreed-upon mortgage and prepayment terms. You are penalized if you back out of your contract and pay off your mortgage balance before the end of your mortgage term.
Most closed-end mortgages allow you some flexibility to increase your mortgage payments or pay a limited lump sum.
Conventional Mortgage vs High Ratio Mortgage
A conventional mortgage (also known as a low-proportion mortgage) is one in which the homebuyer has a down payment that is 20% or more of the home’s purchase price.
Essentially, for a conventional mortgage, the mortgage loan is no more than 80% of the purchase price of the property. Conventional mortgages must be insured by the Canadian Mortgage and Housing Corporation (CMHC).
When your down payment is less than 20% of the appraised value of the property, it is known by CMHC as a high index mortgage and you must obtain mortgage default insurance.