Complete Mortgage Guide — Canada

How Mortgages Work in Canada

The Bank of Canada’s overnight rate directly influences variable mortgage rates and indirectly affects fixed rates through the bond market. Fixed rates are primarily driven by the 5-year Government of Canada bond yield. When the BoC raises rates, variable rates move almost immediately, while fixed rates respond to bond market expectations

Use our mortgage calculator to see how different rates and terms affect your monthly repayments.

Types of Mortgages Available

Canadian mortgages come in fixed-rate (locked for the term), variable-rate (fluctuates with prime), and adjustable-rate (payment amount changes with prime) varieties. The most popular product is the 5-year fixed-rate mortgage. A unique Canadian feature is that the term (typically 1-5 years) is shorter than the amortisation period (25-30 years) — when the term expires, you renew at current market rates. High-ratio mortgages (LTV above 80%) require CMHC, Sagen, or Canada Guaranty mortgage insurance

Read our mortgage types comparison for a detailed side-by-side analysis of each product.

How Much Can You Borrow?

The mortgage stress test requires qualification at the higher of your contract rate plus 2% or the Bank of Canada’s minimum qualifying rate (MQR). GDS (Gross Debt Service) ratio must not exceed 39% and TDS (Total Debt Service) must not exceed 44%. This applies to all federally regulated lenders, including at renewal

The maximum loan-to-value in Canada is Up to 95% for insured mortgages (CMHC insurance mandatory above 80% LTV). Properties over $1 million require minimum 20% deposit and are not eligible for mortgage insurance. The minimum deposit is 5% on the first $500,000 and 10% on the portion between $500,000-$999,999. Loan terms extend up to Amortisation up to 25 years (30 years with 20%+ deposit). Mortgage terms are typically 1-5 years, with 5-year fixed being the most common choice. At term renewal, you can switch lenders, change rate type, or adjust the remaining amortisation.

The Application Process

Get pre-approved to lock in a rate for 90-120 days. You need government ID, proof of income (T4, Notice of Assessment, pay stubs, or T1 General for self-employed), bank statements showing the deposit, details of debts and assets, and the purchase agreement. The lender orders an appraisal. Approval takes 3-10 business days. A real estate lawyer handles the closing and mortgage registration

Costs and Fees

CMHC insurance premium ranges from 2.8% to 4.0% of the mortgage amount for high-ratio mortgages, added to the loan balance. Lenders may charge application fees ($0-$500), appraisal fees ($300-$500), and discharge fees at the end. Early termination penalties can be substantial — typically the greater of 3 months’ interest or the Interest Rate Differential (IRD) for fixed-rate mortgages

What Makes Canada’s Mortgage Market Unique

Canada’s mortgage system is distinctive because terms are much shorter than the amortisation period. Most Canadians renew their mortgage every 5 years, which means rate changes affect existing borrowers far more quickly than in countries with 25-30 year fixed rates. The mortgage stress test, introduced in 2018, requires borrowers to qualify at a higher rate than they will actually pay, reducing the amount they can borrow but providing a safety buffer against future rate increases

Refinancing Your Mortgage

You can refinance up to 80% of your home’s appraised value. If you break a fixed-rate mortgage early, the prepayment penalty can be significant — often the greater of 3 months’ interest or the IRD calculation. Variable-rate penalties are typically just 3 months’ interest. At renewal, switching lenders is essentially penalty-free. Consider a blend-and-extend option with your current lender to avoid penalties while getting a better rate

Read our refinancing guide for a step-by-step walkthrough.

Government Schemes and Support

The First Home Savings Account (FHSA) allows tax-deductible savings up to $8,000/year ($40,000 lifetime) for a first home. The Home Buyers’ Plan (HBP) lets you withdraw up to $60,000 from your RRSP tax-free for a first home. CMHC insured mortgages allow as little as 5% down. The First-Time Home Buyer Incentive offered shared equity with the government (check current availability)

Check our government grants guide for the latest programmes and eligibility details.

Tips for Getting the Best Deal

Always use a mortgage broker for your first purchase — they access dozens of lenders and their service is free to you (paid by the lender). At renewal, never just accept your current lender’s first offer — shop around. Consider accelerated bi-weekly payments, which make one extra monthly payment per year and can shave 3-4 years off a 25-year amortisation. If choosing variable, ensure you can handle payments if rates rise 2-3%

Next Steps

Use our mortgage calculator to model different scenarios, read our property buying guide for the full purchase process, or browse Canada FAQs for quick answers.