Understanding Canadian Mortgage Rates
了解加拿大贷款利率
Mortgage rates in Canada can be confusing—banks advertise posted rates, brokers offer discounted rates, and the Bank of Canada keeps changing its policy rate. Here's what you actually need to know.
Fixed vs. Variable Rates
Fixed Rate Mortgages
Your interest rate is locked in for the entire term (typically 1–5 years). Benefits:
- Predictability: Your payment never changes
- Protection: If rates rise, you're insulated
- Peace of mind: Easier to budget
Drawbacks:
- Usually higher than variable rates at the time of signing
- Breaking a fixed mortgage early has a steep penalty (Interest Rate Differential or IRD)
Variable Rate Mortgages
Your rate fluctuates with the Bank of Canada's overnight rate. Benefits:
- Historically lower: Variable rates have often beaten fixed rates over time
- Lower break penalty: Usually just 3 months' interest
Drawbacks:
- Payment or amortization can change when BoC raises rates
- Psychological stress if rates rise significantly
Posted Rate vs. Discounted Rate
Canadian banks publish a "posted rate"—but nobody actually pays this. It's used mainly for calculating mortgage penalties.
The discounted rate is what you'll actually pay. Banks discount from their posted rate, while mortgage brokers access wholesale rates from 50+ lenders—typically lower than what your bank offers directly.
How the Bank of Canada Affects Your Rate
The Bank of Canada sets the overnight lending rate, which influences prime rate (currently prime + or prime –). Variable mortgage rates are priced as prime ± a spread (e.g., prime – 0.75%).
When the BoC raises rates by 0.25%, variable rate holders see their rate increase by 0.25%. Fixed rate holders are unaffected until their renewal.
Stress Test: The Qualifying Rate
All mortgages in Canada must pass a stress test. You must qualify at the higher of:
- Your contracted rate + 2%, or
- 5.25% (the regulatory minimum qualifying rate)
This means if your actual rate is 5.5%, you must qualify at 7.5%.
Mortgage Terms vs. Amortization
- Term: How long your current rate is locked in (1–10 years, typically 5 years)
- Amortization: Total time to pay off the mortgage (typically 25–30 years)
At the end of each term, you renew at current market rates. This is when working with a broker pays off—you're not locked into your existing lender.
Ready to see what rate you qualify for? Get a free pre-qualification or contact Victor.