What does the ‘lowest Canadian mortgage rate’ really mean?

While we often get asked what's the best mortgage interest rate in Canada, it's important to understand that quoting mortgage rates are dependent on a number of variables, and more information is always required to answer your question. In other words, there are many rates, and just a few will apply to your specific situation. 

This article is to help demystify the concept of what the ‘lowest Canadian mortgage rate’ actually means so that you can discern what you might be seeing quoted online or elsewhere, and whether or not that actually might apply to you! We also point out the games that people in the rate-game play.

The Most Common Mortgage Rates Quoted

First of all, the most common (and lowest) mortgage rates quoted will invariably apply to owner-occupied residential city properties, and be the most popular 5-year term, as follows:

• The CMHC-insured 5-year fixed rate mortgage for new purchase or renewal financing.
  • Insured lending rates applies when the original purchase financing has or had less than 20% down payment.
  • A no-frills or limited feature mortgage is cheaper than a full-feature mortgage, so suspect a no-frills quote will be used to catch your attention
• The CMHC-insured 5-year variable rate mortgage for new purchase or renewal financing.
  • While a specific rate might be shown, variable rates are actually quoted by lenders as a discount to Prime Rate (P), which is effectively set by the Bank of Canada.
  • The bigger the discount, the lower the rate.  
  • When Prime changes, so does your rate.

• Fixed or Variable options.
• Variable options are quoted as a discount to Prime.
• Conventional rates only apply when there is at least 20% down payment or equity.
• While the rate may appear higher than an insured mortgage, a conventional mortgage is actually cheaper as there is no requirement to pay a CMHC insurance premium, which is otherwise added to the mortgage balance.
• Conventional rates for purchase and renewal approach insured rates as your equity or down payment position approaches 35% of the property value.

Obviously, a very low rate is deceptively attractive and the online game is to clickbait you to reach out to that particular firm and establish yourself as one of their leads.

Why Rates Differ for Every Borrower

Mortgage rates aren’t one-size-fits-all, and that’s due to a variety of factors—your credit score, income stability, down payment size, and more—all play a role in the rate a lender will offer you. Different loan products, like fixed or variable rates, and open or closed mortgages, also come with distinct rates that depend on your needs and preferences. Understanding these variables will help you see why the rate you qualify for could be very different from an ‘advertised’ rate. 

A ‘discovery call’ is a term that mortgage brokers (or in fact most people in sales) use to describe an interaction with the client to better determine their requirements. Only after the discovery call, can an appropriate quote can be generated.

At the bottom of this article, you will find a more comprehensive list of the factors in determining rate.

"Only after the Discovery Call, can an appropriate mortgage rate quote can be generated."

How Online Rates Can Be Misleading

You might come across low online rates that seem too good to be true—and sometimes, they are. Often, these 'promotional rates' are available only to borrowers who meet strict criteria, such as excellent credit scores, large down payments, or specific property types. Other rates might have hidden conditions, like penalties for early payment or a requirement to bundle other financial products. It’s essential to read the fine print and understand the full terms before relying on any rate you see advertised.

The Rate-Game Tactics: Common Tricks to Watch Out For

Some lenders and brokers advertise rock-bottom rates to grab attention but may not disclose the associated conditions upfront. Here are a few strategies to be cautious about:

1. Teaser Rates: These are ultra-low rates that may only apply for a short period or come with restrictive terms, making them less favourable over time.
2. Bait-and-Switch: Sometimes, lenders advertise low rates online to attract interest, only to reveal additional fees or conditions when you inquire, which effectively raises the rate.
3. Fine Print and Hidden Fees: Some low rates are tied to restrictive terms like high prepayment penalties or no-refinance clauses, which can limit your options in the future.
4. Bundling Requirements: In some cases, you’ll only get the advertised rate if you purchase additional financial products or services, which could add unexpected costs.

How to Approach Your Mortgage Rate Search

When shopping for a mortgage rate, focus on what best fits your financial goals and circumstances. Start by consulting a mortgage broker or lender you trust to clarify the factors that will influence your rate, and ask for transparency on all terms and conditions. Also worth pointing out, a mortgage rate is a very small part of getting from an objective (say to buy your first home) to a funded mortgage (and enjoying a glass of wine on your new patio). Click here if you would like to learn more about the discovery call as it relates to the full mortgage approval process. This process is what it really takes to get an accurate rate quote and a successfully-funded mortgage. 

The Bottom Line

While finding a low mortgage rate is a common goal, it’s essential to look beyond the numbers and understand what goes into the rate you’re quoted. With a bit of background knowledge and the right guidance, you can secure a mortgage that aligns with your financial health and future plans. Remember, the best rate isn’t always the lowest number—it’s the one that truly fits your needs and goals.

Hopefully, this guide has given you a foundation for understanding Canadian mortgage rates and spotting the signs of a good deal versus a rate that's too good to be true.

Factors to a Mortgage Rate Quote

1. Credit Score: A higher score can qualify for better rates, while a lower score may lead to higher rates. Generally, any score above 680 is considered good.
2. Down Payment: The amount of down payment impacts the loan-to-value (LTV) ratio and can influence the rate, especially if the down payment is less than 20%, requiring mortgage insurance.
3. Income and Employment Status: Steady, documented income with stable employment generally results in better rates, while self-employed borrowers with less income documentation may lead to higher rates.
4. Property Type and Location: Rates may vary depending on the type of property (e.g., single-family, condo, rental property, acreage, vacant land, etc.) and its location due to varying levels of risk.
5. Loan Term: Mortgage terms in Canada usually range from six months to five years, with rates often varying by term length.  The 5-year rate is often the lowest.
6. Amortization Period: Standard amortization is 25 years, but extending it to 30 years can affect the interest rate, as it increases the loan's overall risk.
7. Mortgage Type: Fixed-rate vs. variable-rate mortgages have different rates, with fixed rates offering stability and variable rates often starting lower with potential fluctuation.
8. Mortgage Size: Yes, size matters! For larger mortgage amounts, there can be more flexibility with lenders to negotiate a lower rate. Some call these Jumbo Loans.
9. Debt-to-Income (DTI) Ratio: This reflects a client’s total monthly debt payment obligations as a percentage of their monthly income, impacting the risk level and rate options.
10. Interest Rate Type: Open vs. closed mortgages differ in rate and flexibility, with open mortgages typically having higher rates due to prepayment flexibility.
11. Current Market Rates: Rates fluctuate with economic conditions, the Bank of Canada’s benchmark rate, and lender competition, influencing the quoted rate.
12. Mortgage Insurance: If mortgage default insurance is required (e.g., CMHC, Sagen, or Canada Guaranty), it can influence the rate due to reduced risk for the lender.

Good to Know - Who Sets Canadian Fixed Mortgage Rates?

Hint: the Bank of Canada does NOT set fixed mortgage rates.

It is a common misconception that the Bank of Canada sets fixed mortgage rates. Rather, fixed rates are influenced by the Bond Market, and bond-yields constantly change as new information becomes known about inflation, employment rates, and the economy.  Bonds are essentially loans where an investor lends money to a company or a government for a set period of time, in exchange for regular interest payments. Generally, when inflation cools and recession fears linger, bond markets will drift down and fixed rates follow suit and vice versa.

For example, the popular 5-year fixed mortgage rate will generally be about - on average - 1.6% above the 5 year Canada bond yield for a CMHC-insured purchase or renewal. If the bond yield is 3.5%, then the 5-year fixed should be ~5.1%.  Click on the image if you want to see live bond market trading.

If you would like to determine mortgage options and likely rates for your unique situation, please feel free to reach out and tell is a little bit about yourself. We like to think of all clients as customers for life. Please take a moment to read some of our customers' Google Reviews.