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CONVENTIONAL 5-YEAR FIXED MORTGAGE RATES VS. HIGH RATIO 5-YEAR FIXED MORTGAGE RATES

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DateAAA LenderLimited Rates
April 20202.892.64
May 20202.512.34
June 20202.382.21
July 20202.152.00
August 20202.021.87
September 20201.931.79
October 20201.911.78
November 20201.841.69
December 20201.821.63

Some basic questions, answered.

The best way to find out how much you can afford is to speak with a qualified mortgage broker who works with many lenders. Rather than working at one bank, you can get access to specialty mortgage programs for your specific financing case.

It’s very important to determine what your available resources are for your down payment. This can be from employment savings only or it can also be a gift from an immediate family member. There are many different types of down-payment sources accepted by lenders including Home Equity Lines of Credit. Have Questions? Let us know!

On a home that’s $500,000 or less, you’re required to put down at least 5% upfront. On a home that’s between $500,000 and $1 million, you’re required to put down 5% of the first $500,000, and 10% of the rest of the principal. On a $1 million home, you’re required to put down at least 20%.

Down payments that amount to less than 20% of the purchase price are called high ratio files requiring default insurance to guarantee their mortgage. There are 3 mortgage insurers in Canada, Sagen, CMHC and Canada Guaranty.

Having a downpayment over 20% makes your mortgage conventional. However, interest rates on high-ratio mortgages tend to be lower than the rates on conventional mortgages. That’s because the added insurance reduces the risk of the bank losing its investment. You are normally not required to purchase mortgage insurance when you buy with more than 20% down or are refinancing.

Gross Debt Service Ratio: Your GDS ratio refers to the amount of your monthly income you’ll spend on housing costs. Total Debt Service Ratio: Your TDS ratio refers to the total portion of your income that goes to paying debts and obligations each month.

The best mortgage rate may not be the lowest rate. Often the lowest rate mortgages have restrictive policies attached to it and higher penalties. As mortgage brokers we review more than just the sticker price but dive deep into the fine print to properly advise you how to optimize your home loan. Variable Mortgage rates are the most flexible for the consumer. Fixed Rates carry with it higher penalties, so we recommend if you choose a fixed rate mortgage that it is from a non-bank lender.
Many mortgage brokers and banks will advertise very low rates in order to lure in consumers. The only numbers discussed are just the face value rate, however there is often no mention of the higher mortgage penalties, reduced pre-payment privileges, restrictions on porting, bonafide sales clauses. There is a LOT that goes into pricing, namely, your preferences and goals as our client. Not all mortgages are made equal and its important for you to know the pros and cons. Our goal is to advise you on the mortgages you qualify for and outline options for you from different mortgage lenders in Canada.
The average mortgage rates in Canada change consistently across regions. The mortgage rates that we receive special promotions for in Ontario may be different in Alberta, British Columbia and Quebec. You can review all of our mortgage rates on our rates page. Contact a broker today to find out which mortgage rates you qualify for.
A fixed rate mortgage maintains the same payment throughout the duration of your mortgage term. Fixed rate mortgages have higher penalties than variable rate mortgages. Variable Rates are expressed as an equation based on the bank’s prime rate. For example, a (Prime- 1). Prime rates typically change based on interest rate movements by the Bank of Canada’s decision on the overnight lending rate. Historically this has been a quarter percentage point at a time (0.25). Variable rate mortgages can be locked in to a fixed rate at any-time. The maximum penalty for a variable rate product is 3 months interest.
A closed mortgage is the most common mortgage and refers to the term that a client signs on for. For example, a 5 year fixed mortgage - the mortgage is closed until maturity when it can be renewed, refinanced or switched to a new lender. If changes are made within the term of a closed mortgage, then clients usually face a penalty. An open mortgage can be paid in full at any time. Typically, an open mortgage is reserved for a period of time that your mortgage is past the maturity date and before you have chosen your new terms. An open mortgage is sometimes also used interchangeably with a HELOC which can be paid out at any time.
Credit scores in Canada range from 300-900. There are two main credit reporting agencies, Equifax and Transunion. When purchasing with less than 20% down at a regular lending institution (not a private lender) the minimum credit score at most lenders is 620, however the higher the better. Your score itself does not qualify you for a mortgage as the report will be analyzed to review payment history, length of open tradelines, public filings like bankruptcy and consumer proposals etc. For subprime lenders and private lenders your credit score is not as important of a consideration compared to regular banks. This does not mean your credit score will not be analyzed however, in the investment model of these lenders they will place a heavy emphasis on your downpayment and the property value/marketability.
The stress test was introduced in 2016/17 as a measure to cool the housing market and price growth. The stress test creates a buffer between your mortgage rate and the mortgage qualifying rate. This buffer is meant to safeguard consumers on the implications of rising rates. The mortgage qualifying rate is the average 5 year fixed posted rate at the top 5 banks in Canada (TD, CIBC, BMO, RBC, Scotia). We do work with lenders that do not fall under the federal guidelines of the stress test. Credit Unions are provincially regulated and can offer non-stress-test mortgages. Contact a mortgage professional today to learn more about your affordability and how to get pre approved.

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