Mortgage Rates in Canada: How They're Set and How to Get the Best One
Two borrowers can walk into the same bank on the same day and be offered different mortgage rates. That isn't luck. Canadian mortgage interest rates are built from a handful of inputs — some set by markets, some by your file — and once you know what they are, you know which ones you can move.
Key takeaways
- Fixed mortgage rates follow Government of Canada bond yields. Variable rates follow the lender's prime rate, which moves with the Bank of Canada's policy rate.
- Your own rate depends on your down payment, whether the mortgage is insured, the property, your credit and the term you choose.
- The posted rate is rarely the rate you should pay. Shopping several lenders — or using a broker who does — is how you get the best mortgage rates on offer.
- Compare the whole mortgage, not just the rate: prepayment privileges and the penalty formula can cost more than a few basis points.
Where current mortgage rates come from
Every lender's rate sheet starts with what money costs the lender, then adds a margin for risk, operating costs and profit. What "money costs" depends on the type of rate.
Fixed rates follow the bond market
Lenders fund fixed-rate mortgages largely through the bond market, so fixed mortgage rates move with Government of Canada bond yields of a similar term. A five-year fixed rate tracks the five-year bond yield; a three-year fixed tracks the three-year yield. When bond yields rise on inflation news or global markets, fixed rates usually follow within days — sometimes before the Bank of Canada does anything at all.
Variable rates follow prime
A variable or adjustable rate is quoted as the lender's prime rate plus or minus a set amount — for example, "prime minus 0.50%". Prime itself moves when the Bank of Canada changes its policy rate. In recent years the big banks have kept prime 2.20 percentage points above the policy rate, so a 0.25% cut by the Bank of Canada generally becomes a 0.25% cut in prime the same day.
That is why fixed and variable rates can move in opposite directions: one is reacting to what markets expect to happen over five years, the other to what the Bank of Canada did this morning.
Why your rate isn't the rate in the advertisement
The lowest mortgage rates today on any rate table are for the lowest-risk files. Lenders price each mortgage on a few factors:
| Factor | How it moves your rate |
|---|---|
| Insured vs uninsured | Mortgages with less than 20% down must carry default insurance. Because the insurer carries the risk, insured mortgages often get the lowest rates. |
| Loan-to-value | Among uninsured mortgages, more equity usually means a better rate — and some lenders price 65% loan-to-value or less more sharply still. |
| Amortization | Uninsured mortgages amortized beyond 25 years can carry a small premium at some lenders. |
| Property | Rental properties, rural properties and unique homes can cost more to finance than an owner-occupied house in a city. |
| Credit and income | Strong credit and easy-to-document income get the best pricing. Bruised credit or self-employed income may route you to an alternative lender at a higher rate. |
| Transaction | Purchases and switches at renewal are often priced better than refinances that take equity out. |
| Term | Each term (1 to 10 years) is priced separately. The five-year term is the most common, but not always the cheapest. |
Posted rates versus the rate you actually pay
Banks publish "posted" rates that are usually well above what qualified borrowers pay. The discounted rate is what you negotiate. The posted rate still matters later, though: some lenders use it to calculate the penalty if you break a fixed mortgage early, which is one reason two mortgages with the same rate can cost very different amounts.
How to get the best Canadian mortgage rates
- Know your numbers before you shop. Income, debts, down payment and credit score decide which lenders will compete for you. A pre-approval also gives you a rate hold — typically 90 to 120 days — that protects you if rates rise while you look.
- Get more than one quote. Banks, monoline lenders and credit unions price differently, and they don't all advertise. A licensed broker quotes several at once on one credit check — see mortgage broker vs bank.
- Choose the term on purpose. Read fixed vs variable before deciding, rather than defaulting to five years fixed.
- Compare the whole contract. Prepayment privileges, portability, the penalty formula and whether the mortgage is registered as a collateral charge all affect what it costs you.
- Don't sign a renewal letter unread. At renewal you can switch lenders, and since November 2024 an uninsured straight switch to another federally regulated lender no longer requires the stress test, provided the amount and amortization don't increase.
How mortgage interest is calculated in Canada
Under the federal Interest Act, a blended-payment mortgage must state its rate as calculated yearly or half-yearly. In practice, Canadian fixed-rate mortgages are compounded semi-annually, not monthly — which is why a Canadian mortgage calculator gives a slightly lower payment than an American one at the same rate. Variable-rate mortgages are often compounded monthly; your commitment letter will say which.
To see what a rate means for your payment, try our mortgage payment calculator, or read how to use a mortgage calculator.
Rates you qualify at are not the rates you pay
Federally regulated lenders must qualify you at a higher "stress test" rate: the greater of your contract rate plus 2% or 5.25%. It doesn't change your payment, but it does decide how much you can borrow. How much mortgage can I afford? walks through the calculation.
Sources
This article is general information, not financial advice. Rates, products and qualification rules change and vary by lender and province. Mortgage financing is subject to lender approval.
Frequently asked questions
Rates change daily with bond markets and the Bank of Canada. Our home page rate board shows the benchmark rates we're seeing for well-qualified borrowers, with the date they were last updated. Your own rate depends on your down payment, credit, property and term.
Because the mortgage insurer, not the lender, carries the risk of default. Lenders can also package insured mortgages more cheaply. You pay for that through the insurance premium, which is added to your mortgage.
Variable rates usually do, the same day, because prime moves with the policy rate. Fixed rates may not: they follow bond yields, which often move in anticipation of a cut and may have already fallen — or risen — before the announcement.
Yes. Posted rates are a starting point. A competing written quote is the most effective negotiating tool, and a broker can obtain several for you with a single credit check.
Not always. A mortgage with a slightly higher rate but generous prepayment privileges or a fairer penalty can cost less overall, especially if there's any chance you'll sell, refinance or move before the term ends.
See the rate your file actually qualifies for
Lendmax Capital compares banks, monolines, credit unions and alternative lenders for you on one credit check. No cost on standard residential mortgages.