HomebuyingDoes getting a private mortgage ever make sense?
This article has been updated from a previous version.
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How mortgage rates are determined in Ontario and what influences them.
Mortgage rates in Ontario are determined much like they are in the rest of Canada (although with some slight nuances).
The prime rate is the target lending rate that banks use to set interest rates for variable loans, lines of credit and/or mortgages. Because of stiff competition among the banks, each bank sets its own prime rate, and getting the best Ontario mortgage rates is not too difficult given that most banks follow each other if one of them lowers or raises its rates by a point or two.
The prime rates used by the individual banks are generally set based on the Bank of Canada overnight target rate. The target rate is used by the Central Bank to influence how the banks set their own rates and acts as a barometer for the rate at which banks borrow and lend among themselves.
What influences mortgage rates in Ontario?
Ontario is Canada’s largest province, with a diverse population of nearly 15 million people. However, the population is aging quickly, and Ontarians are moving into retirement faster than new workers are replacing them. Immigration remains relatively high at 198,530 immigrants entering Ontario in 2021.
According to the Canadian Real Estate Association, home sales dropped more than 12% in April compared to the prior month. In Ontario, forecasts from institutions such as RBC say that aggregate home prices will drop from $936,900 this year to $915,300 next year.
As inflation has crept into our daily budgets, current mortgage rates in Ontario have also been on the rise. Inflation does not directly affect mortgage rates but as the Bank of Canada raises rates to cool down economic activity, homebuyers may retreat from the market.
As a result, there is greater competition among lenders in Ontario as Ontarians seek better rates. For example, credit unions and private lenders, which make up about 3.7% of the country's mortgage business, handle about 6.7% of the province’s mortgages. High demand from homebuyers is fueling competition between lenders in the province.
Mortgage default insurance
Mortgage default insurance is a form of protection for the lender, not the buyer. The government of Canada requires mortgage default insurance to be paid by the borrower if they put less than 20% down on a home.
Default mortgage insurance is only available for homes priced under $1 million. To acquire it, you must meet the bank’s eligibility requirements as well as the underwriting standards of your mortgage insurer.
Factors that affect your Ontario mortgage rate
Mortgage rates, as mentioned, are set by the lending institutions and the Bank of Canada overnight target rate. However, other factors can affect your mortgage rates in Ontario.
How much do you need to borrow
According to the Canadian Real Estate Association, the average price for a house in Ontario was $940,845 as of May 2022. In Ontario, you will need at least a 5% down payment for purchases between $500,000 and $1 million and 10% for the remaining amount.
Fixed versus variable
The ongoing debate about taking out a fixed or variable mortgage will certainly affect your rate. Variable rates lock in your payment, but your interest rates fluctuate with the rate changes in the market. Fixed rates allow both principal and interest payments to remain constant and provide peace of mind for the borrower.
Effects of getting fixed versus variable mortgages
In terms of variable versus fixed. Today’s variable rate mortgage contract might offer a prime rate of 3.2% minus 0.6%, for a rate of about 2.6%. Whereas fixed rates (usually offered in five-year intervals) are around 3.89%, making the spread 1.6%. As the Bank of Canada raises rates, that spread will shrink.
Let’s look at some other examples.
Gross debt service ratio
Lenders will need to calculate your Gross Debt Service (GDS) Ratio. . GDS is the percentage of your monthly income that covers your housing costs; it must not exceed 39%. Total Debt Service (TDS) is the percentage of your monthly household income that covers your housing costs and any other debts; it must not exceed 44%.
If you want a $500,000 mortgage and put down 5% or $25,000, you’ll need insurance from the Canada Mortgage and Housing Corporation (CMHC), which adds an extra $19,000 to your mortgage. To pass a lender’s stress test, your income would have to be greater than total expenses (in this case, estimated at $3,442 per month)
The minimum in this case would be an income of $130,000.
$130,000/12 = $10,833
$10,833 x 0.32 =$3,447
In this case, expenses of $3,442 are slightly below your income of $3,447, and you would pass the stress test to receive a mortgage.
Of course, increasing the downpayment as high as 20% would eliminate the CMHC insurance, and monthly payments would decrease.
Lump sum payments
Another factor that affects your mortgage rate is lump sum payments. The faster you pay down your mortgage, the more you save on interest rate charges. It also shortens the length of time required to pay off your debt.
A lump sum payment is a one-time payment you make towards your mortgage outside your regular payment schedule. Many banks allow payments up to 15% of your original borrowed amount per year without triggering a prepayment charge. For example, if you have a mortgage of $400,000, you can make a lump sum payment of $60,000 per year on top of your other payments. This can be done at once or spread out over the course of the year.
Credit score
Also, your credit score can affect your rate positively or negatively, depending on your history. A good credit rating shows the lender you’re a “good risk” and will likely pay back the loan, leading to a better interest rate than someone with a lower credit score. In 2020, the Canada Mortgage and Housing Corporation increased the minimum credit score requirement on insured mortgages from 600 to 680.
Property usage
What if you are buying an income property and you don’t plan to live there? That will most certainly affect your interest rate, which tends to be higher as lenders perceive this as a riskier loan.
If you are self-employed and work from home, mortgage rates can be higher but aren’t always. Building up capital and the viability of your business will also play a role in finding the best mortgage rates in Ontario.
Variable Rates
As low as
4.25%
Fixed Rates
As low as
4.29%
Cha-ching! Our rates are always lower than the posted bank rates.
Current lowest posted bank rate
6.25%
The main differences between conventional and high-ratio mortgages
Let’s start with the basics. A conventional mortgage is a mortgage loan up to 80% of the value of the property you are buying. A high-ratio mortgage is a mortgage loan higher than 80% of the property’s value.
Which is cheaper?
Here’s the trick. People who are stretched financially and considered high-risk by lenders take out high-ratio mortgages. Since they’re high risk, they’re required to buy default insurance . Since there is insurance, banks can exhale a bit, and the rates tend to be lower than conventional mortgages with no insurance backstop.
Conventional 5-year fixed mortgage rates vs. high ratio 5-year fixed mortgage rates in Ontario
| Date | Average Conventional Rate | Average High Ratio Rate |
|---|---|---|
| 09/21 | 2.02% | 1.75% |
| 10/21 | 2.12% | 1.87% |
| 11/21 | 2.41% | 2.16% |
| 12/21 | 2.48% | 2.21% |
| 01/22 | 2.56% | 2.31% |
| 02/22 | 2.77% | 2.49% |
| 03/22 | 3.07% | 2.77% |
| 04/22 | 3.61% | 3.33% |
| 05/22 | 4.04% | 3.69% |
| 06/22 | 4.36% | 3.98% |
| 07/22 | 4.85% | 4.46% |
| 08/22 | 4.79% | 4.36% |
Last Updated: September 1, 2022
The main differences between fixed rate and variable rate mortgages
Among the myriad decisions consumers must make when taking the leap into home ownership, selecting the type of mortgage they choose is at the top of the list. Should you get a fixed or variable mortgage?
A fixed rate mortgage is just that – fixed over a period of time. Interest rates and the mortgage payments remain the same (and consistent) over that mortgage term.
A variable rate mortgage is different. While the mortgage payment remains constant, the interest rate payments fluctuate with the prime interest rate.
Which is cheaper?
The debate continues. Many mortgage rates in Ontario are fixed, mostly because budgeting is easier with a fixed amount and term. However, variable rates can be cheaper but do fluctuate as prime rates move. Until recently, this has made them consistently cheaper than fixed rates but as interest rates continue to climb, so does the increase in payments of a variable rate mortgage.
5-year fixed vs. 5-year variable mortgage rates in Ontario
| Month | Fixed | Variable |
|---|---|---|
| 09/21 | 1.92% | 1.27% |
| 10/21 | 2.05% | 1.24% |
| 11/21 | 2.32% | 1.19% |
| 12/21 | 2.38% | 1.18% |
| 01/22 | 2.47% | 1.23% |
| 02/22 | 2.66% | 1.26% |
| 03/22 | 3.00% | 1.53% |
| 04/22 | 3.51% | 1.86% |
| 05/22 | 3.90% | 2.26% |
| 06/22 | 4.24% | 2.71% |
| 07/22 | 4.72% | 3.20% |
| 08/22 | 4.60% | 3.79% |
Last Updated: September 1, 2022
Average mortgage amount in Ontario
The Canadian Mortgage and Housing Corporation prepares lists on the average value for new mortgage loans throughout the country. For example, British Columbia had the highest average value in the fourth quarter of 2021 at $487,539. Newfoundland had the lowest value at $210,102 in the same period.
Ontario was second highest coming in at $453,716.
In Canada, the average value in the fourth quarter of 2021 was $385,717.
The average 2021 value of mortgages in each province, include:
| Q1 - 2021 | Q2 - 2022 | Q3 - 2021 | Q4 - 2021 | |
|---|---|---|---|---|
Canada | Q1 - 2021 $335,462 | Q2 - 2022 $351,862 | Q3 - 2021 $371,584 | Q4 - 2021 $358,717 |
Newfoundland | Q1 - 2021 $192,209 | Q2 - 2022 $205,542 | Q3 - 2021 $221,894 | Q4 - 2021 $210,102 |
Prince Edward Island | Q1 - 2021 $208,668 | Q2 - 2022 $228,022 | Q3 - 2021 $235,879 | Q4 - 2021 $251,763 |
Nova Scotia | Q1 - 2021 $213,713 | Q2 - 2022 $230,658 | Q3 - 2021 $249,364 | Q4 - 2021 $242,142 |
New Brunswick | Q1 - 2021 $159,046 | Q2 - 2022 $171,990 | Q3 - 2021 $184,680 | Q4 - 2021 $180,573 |
Quebec | Q1 - 2021 $217,104 | Q2 - 2022 $219,591 | Q3 - 2021 $234,322 | Q4 - 2021 $219,237 |
Ontario | Q1 - 2021 $403,739 | Q2 - 2022 $438,719 | Q3 - 2021 $464,17 | Q4 - 2021 $453,716 |
Manitoba | Q1 - 2021 $230,460 | Q2 - 2022 $238,272 | Q3 - 2021 $257,619 | Q4 - 2021 $252,711 |
Saskatchewan | Q1 - 2021 $233,411 | Q2 - 2022 $250,880 | Q3 - 2021 $262,544 | Q4 - 2021 $258,396 |
Alberta | Q1 - 2021 $305,642 | Q2 - 2022 $323,493 | Q3 - 2021 $337,087 | Q4 - 2021 $326,527 |
British Columbia | Q1 - 2021 $454,970 | Q2 - 2022 $481,507 | Q3 - 2021 $501,357 | Q4 - 2021 $487,539 |
The size of the mortgage matters
The amount of money you borrow for your mortgage will have an effect on future costs. Why? Processing a mortgage comes with costs and fees are prevalent even at low mortgage amounts. For example, it can cost as much as $1,000 to process, underwrite and fund a home loan.
Let’s say a lender charges a 0.5% fee, also known as an origination fee. On a larger mortgage of $400,000, that fee comes to $2,000. On a low mortgage amount, say $40,000, that fee would equal $200. If processing fees are $1,000, the lender would lose money and therefore have to raise the fee on “low loan amounts” to not only cover expenses but make a small profit
Large loan amounts have a risk factor attached to them. Lenders stand to lose more if they lend out large amounts to borrowers who can’t pay their debts. As a result, some lenders often have stricter underwriting guidelines that require a larger downpayment and higher credit score to secure the loan.
To compare the best mortgage rates in Ontario click here.
Ontario mortgage performance
Most Ontarians who take out mortgages do so with good intentions andplan to pay on time and in full. But good intentions are not enough to prevent mortgage delinquency.
For example, according to the Canadian Bankers Association, in Ontario, the delinquency rate at the end of March 2022 was only 0.06% or 1,240 mortgages out of a total of 2,159,122. That’s below the national average of .15% or 7,820 out of 5,049,145 and the lowest in the country. The highest provincial rate occurred in Saskatchewan 0.62% or 820 out of 132,782 mortgages.
Mortgage delinquencies affect the broader economy. As mortgage rates go up, the cost of borrowing and purchasing a home becomes more expensive. Over time this could increase supply as demand decreases and the housing boom and high housing prices seen for many years in Ontario could come off its highs.
Month Ended March 31, 2022
| Location | Total # of Mortgages | Number of Mortgages in Arrears | % of Arrears to Total Number of Mortgages |
|---|---|---|---|
Atlantic | Total # of Mortgages 352,816 | Number of Mortgages in Arrears 878 | % of Arrears to Total Number of Mortgages 0.25% |
Quebec | Total # of Mortgages 956,447 | Number of Mortgages in Arrears 1,133 | % of Arrears to Total Number of Mortgages 0.12% |
Ontario | Total # of Mortgages 2,159,122 | Number of Mortgages in Arrears 1,240 | % of Arrears to Total Number of Mortgages 0.06% |
Manitoba | Total # of Mortgages 124,795 | Number of Mortgages in Arrears 352 | Private Lenders 0.28% |
Saskatchewan | Total # of Mortgages 132,782 | Number of Mortgages in Arrears 820 | Private Lenders 0.62% |
Alberta | Total # of Mortgages 601,155 | Number of Mortgages in Arrears 2,620 | Private Lenders 0.44% |
B.C. | Total # of Mortgages 711,354 | Number of Mortgages in Arrears 777 | Private Lenders 0.11% |
Territories | Total # of Mortgages 10,674 | Number of Mortgages in Arrears | Private Lenders |
Canada | Total # of Mortgages 5,049,145 | Number of Mortgages in Arrears 7,820 | Private Lenders 0.15% |
The latest data from the Canadian Bankers Association shows a mortgage arrears rate in Canada of 0.15% as of March 2022. In Ontario that number is 0.06%.
But a lot has changed, and with rising rates, those numbers may increase over time.
Current Ontario housing market and home prices
In mid-2022, the Bank of Canada began raising interest rates to tame inflation, have cooled the housing market and prices considerably. Reports at the time from the Canadian Real Estate Association (CREA)showed the country experienced a 25.7% drop in the number of houses sold year-over-year
By all accounts, interest rates may continue to rise throughout 2022. This will certainly have an even greater cooling effect on the housing market and home prices to pre-pandemic levels (or lower).
In Ontario, CREA says that the number of homes sold in April 2022 was down 34.1% from the same time last year. The average price of resale residential homes sold across the prince in April was $985,354, an increase of 13.3% from April 2021.
New listings declined 7.8% from April 2021 but were 17.5% above the five-year average and 7.7% above the 10-year average. The dollar value of all home sales in the province in April 2022 was $19.7 billion, a drop of 25.3% from the same period last year.
Overall, in Ontario, there were 20,021 residential sales in April 2022. That’s a year-over-year decline of 34.1%.
Ontario closing costs
Closing costs are the one-time fees buyers pay upon purchasing property in Ontario. Generally, closing costs include:
Land or transfer tax
Lawyer fees
Inspection fees
Homeowner’s insurance
Appraisal fees
Typically, closing costs can range from 1.5% to 4% of the home’s purchase price. For example, for a home in Toronto that costs $1.352 million, you can expect fees to range from $49,000 to $52,000.
Non-residents (non-citizens or non-permanent residents) who purchase a home in Ontario can expect an additional tax burden to the price they are paying. In Ontario, that tax – the Non-Resident Speculation Tax (NRST) has recently been raised to 20% on top of the property’s value.
Exemptions are made for nominees – those that are nominated under the Ontario Immigrant Nominee Program, protected persons – those with refugee status, and spouses – foreign nationals purchasing a property with a spouse.
Also, rebates for the NRST are available to foreign nationals who become permanent residents of Canada, international students, and foreign nationals who work in Ontario.
Your questions about Ontario mortgages, answered.
How can I qualify for a mortgage in Ontario?
It’s important to have a good credit score. Canada Mortgage and Housing Corporation says the credit score requirement on insured mortgages should be 680.
Other factors you should have in order can include:
Paying down debt – This can do a few things. Paying debt frees up resources to put towards your downpayment or mortgage. It also indicates to lenders that you are a “good risk” and have the ability (and desire) to pay loans in a responsible manner.
Calculating assets and liabilities – If knowledge is power, then understanding your economic situation will help you obtain the mortgage you need. By having a complete picture of assets and liabilities, you will be better prepared to provide the information lenders require to decide on your mortgage application. This can be done with an accountant, if you have one, or on your own.
Having a consistent employment history – Lenders want to see elements of your financial life that reduce risk. Being employed consistently indicates your ability to be financially responsible. This will be an important factor in indicating to lenders that you can pay your debts with little to no risk of default.
Having a large downpayment -- The more you save towards the purchase of a house, the better you will be in the long-run in terms of debt burdens. However, lenders also see this as a lower-risk proposition. The less you need to borrow, the quicker they can get their money back if you default on the loan. Monthly costs are reduced for you, and you look more attractive to lenders who are all about reducing their own risk.
Most importantly is proving you can carry the mortgage, usually calculated by your broker or mortgage agent using a debt service ratio analysis.
Should I use a mortgage broker in Ontario?
Unlike a bank, a mortgage broker can only offer mortgages from their line of products. They can access many lenders and help you choose the right product for your circumstance. More good news is that mortgage brokers are free to use and are paid by the lender while also having access to a variety of lender interest rates.
What’s the difference between a mortgage term and an amortization period?
A mortgage term is the length of time the mortgage agreement at your agreed interest rate is in effect. An amortization period is simply the length of time it takes for you to repay your loan.
What’s the difference between an open mortgage vs. a closed mortgage? Which one should I get?
An open mortgage allows you to pay back the loan in full at any time. A closed mortgage allows limited lump-sum prepayments and includes penalties if you pay the loan ahead of schedule.
Which one to choose is a matter of preference. A close mortgage will generally have lower interest rates because of the limitations placed on the payment. But you may want to lift the burden of mortgage payments if, at some time, you feel you will be able to pay it back in full.
How much does it cost to live in Ontario?
With great diversity, a large population and abundant work opportunities Ontario is a popular and, therefore, expensive place to live. Average costs will vary from city to city. According to the LowestRates.ca Cost of Living Report, renters living in Toronto will pay on average 2,076.99 for housing. For homeowners that cost goes up to $5,417.12 (includes mortgage payment, home insurance and property tax)
How much does getting a lower mortgage interest rate matter in Ontario?
Ontario is one of the most expensive provinces to live in Canada (BC also ranks high). Most of the population of Ontario lives in and around the Greater Toronto Area (GTA), which has the most expensive real estate due to its proximity to Toronto. To work, live and afford a home in Ontario, especially in more populated areas, a lower mortgage rate will benefit you.
Ontario real estate is near the top of the list in terms of cost and has the highest average mortgage amount compared to the rest of Canada. Because of this, getting the lowest rate is of even more importance.
Ontario’s real estate market is expensive, reflecting some of the highest average mortgage amounts in the country. The crucial first step to securing the best rate is to compare what’s available. Our quote tool will help you do so in less than three minutes. You could end up saving thousands of dollars.
What is a mortgage rate hold?
A mortgage rate hold or rate lock allows buyers a guaranteed interest rate on their mortgage for a set period (usually 30 to 60 days but up to a maximum of 120 days). It is usually used when a buyer knows they will be purchasing or refinancing their home in the near future.
What are prepayment options?
Prepayment options allow you to repay your mortgage sooner than the original payment schedule. There are two ways to do this – increase your mortgage payments or pay a lump sum.
Is it safe to get a mortgage online?
Applying for a mortgage online can be as safe and effective as doing it in person. In fact, online mortgage vendors often have more attractive rates due to the competitive nature of the business. It is wise, however, to be wary of the risk of fraud, online scams and illegal business practices when applying online. The Financial Services Regulatory Authority of Ontario has more information about how to distinguish who is — and who is not — a reputable mortgage lender.
How do I know I’m getting the lowest rate?
A few factors will determine if you can get the lowest rate, including your credit score, employment record, and downpayment. Having that data and comparison shopping on sites like LowestRates.ca will ensure you are getting the lowest rates available.
Why will the best mortgage rate in Ontario be different than mortgage rates available in other parts of Canada?
The best Ontario mortgage rates are generally the lowest in Canada mainly due to competition among lenders. Ontario has the largest population of the Canadian provinces, estimated by the provincial government to be 14,915.3 million. Ontario received 48.3% of all immigrants to Canada in the first quarter, a total of 66,691 people. As a result, more people are seeking housing in Ontario than anywhere else in the country.
With Canada expected to welcome many thousands of immigrants in the years ahead, demand for mortgages is likely to increase as well. Most of that demand occurs in urban centres where immigrants tend to reside. Demand also increases housing prices but may make mortgage lenders compete for the same group of new customers.
Your questions about LowestRates.ca, answered.
How are mortgage rates determined on LowestRates.ca?
LowestRates.ca works with 50+ banks and brokers to bring you competitive rates from banks and mortgage brokers in Ontario and across Canada. We work with our partners to obtain their best deals and offers, and then we let them compete for your business. All you have to do is answer a few questions, and in minutes you’ll be provided with today’s mortgage interest rates for Ontario. There’s no obligation, but you can choose to speak with our broker partner to secure your best rate and see if you're eligible for more savings.
Is it safe to get a mortgage online?
Yes, it’s safe — you no longer need to visit a bank branch or mortgage broker’s office in person to apply for a mortgage. It’s becoming increasingly common for Canadians to apply for mortgages online. LowestRates.ca only works with reputable, trustworthy financial institutions. Your credit score won’t be affected and your information is secure. We don’t share your information with anyone unless you want to connect with a mortgage broker. We take care of the heavy lifting by comparing the market for you and can connect you with the best mortgage lenders in the country.
How do I know I’m getting the lowest rate?
We have a strong selection of lenders on LowestRates.ca including the big banks and many independent providers. This ensures we’re always delivering you a competitive rate. Even if you’re not ready to commit to anything, you can use our site as a starting point for research (it’s totally free, and you’re under no obligation).
The better informed you are, the more likely you'll negotiate a better deal for yourself. And, really, that’s what we care about the most.
*Based on the difference between estimated deep-discount 5-year fixed rates from Canada's top six banks and the lowest comparable rates on LowestRates.ca, as of January 14, 2022.
LowestRates.ca Staff
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This article has been updated from a previous version.