Variable rates are expected to stay low until at least 2023, whereas fixed rates are on the rise.
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Conventional vs. high-ratio mortgages: which is cheaper?
On LowestRates.ca, users can start an application to buy a home, renew a mortgage or refinance a home. If you’re purchasing a home, the two main types of mortgages you can apply for are conventional mortgages and high-ratio mortgages. A conventional mortgage means the homebuyer has a down payment of at least 20% of the property’s purchase price. With this type of mortgage, you aren’t required to purchase mortgage default insurance.
A high-ratio mortgage, on the other hand, is where the homeowner puts down less than 20% of the purchase price. In this case, you’re required to purchase mortgage insurance from one of three providers in Canada: the government-backed Canada Mortgage and Housing Corporation (CMHC), or private insurance companies Canada Guaranty and Sagen. Mortgage insurance premiums can be paid as a lump sum when you close the deal on your house, or can be added to the cost of your mortgage payments.
Take a look at our comparison of high-ratio mortgages vs. conventional mortgage rates in Ontario.
Conventional 5-year fixed mortgage rates vs. high ratio 5-year fixed mortgage rates in Ontario
|Date||Average Conventional Rate||Average High Ratio Rate|
Last Updated: April 1, 2021
Fixed rate vs. variable rate mortgages: which is cheaper?
One question homebuyers will face: how do variable mortgage rates in Ontario compare to the best fixed rates in Ontario?
With a fixed rate, the interest rate stays constant for the entire mortgage term. Variable mortgage rates in Ontario (and across Canada) may change if the lender changes its prime rate, which in turn is influenced by market conditions such as the Bank of Canada’s overnight lending rate.
To find the answer to how these two different types of rates compare, we compared 5-year fixed mortgage rates and 5-year variable mortgage rates that Ontarians have applied for on our site.
We discovered that whether you go with a fixed or variable rate on LowestRates.ca, you’re getting a great deal.
5-year fixed vs. 5-year variable mortgage rates in Ontario
Last Updated: April 1, 2021
Factors that affect your Ontario mortgage rate
If you want to borrow money for a mortgage, lenders will review the state of your finances to help determine how much risk you pose as a borrower. This will influence whether or not the lender approves your mortgage application, and whether you qualify for their best interest rates. If you’re applying for a mortgage, here’s what lenders will take into account:
Down payment: One of the strongest indicators of your financial stability is if you are capable of making a down payment of 20% or more on the purchase of your new property. The more you put down, the less you’ll end up paying in interest over the lifetime of your mortgage. Across Canada, there are minimum down payment rules set by the federal government based on the price of the home:
- A home that costs $500,000 or less: the minimum down payment is 5% of the purchase price
- A home that costs $500,000 to $999,999: the minimum down payment is 5% of the first $500,000 of the purchase price, and 10% for the portion above the purchase price above $500,000
- A home that costs $1 million or more: the minimum down payment is 20% of the purchase price
What if you don’t have enough money for a down payment? If you’re wondering about 0 down mortgages in Ontario, the federal government banned them across Canada in 2008 amidst the subprime mortgage crisis in the United States. There’s a loophole that allows buyers to finance a down payment with a private loan, but this is never advisable — you’ll start off with no equity, and have a ton of debt from your down payment loan and your mortgage payments. If you’re thinking about an Ontario no down payment mortgage, do your research first.
Debt service ratios: Taking on mortgage payments adds a new financial obligation to your plate. Lenders know you have other bills to pay each month, so they want to be reassured you can handle the addition of mortgage payments. To compare your income vs. expenses, lenders use two debt ratios.
- Gross debt service ratio (GDS): This calculation determines what portion of your income each month will be going towards property expenses i.e. mortgage payments, property taxes, utilities, etc. All of these expenses are added up and divided by your gross annual income. If the percentage is 35% or less, the bank or lender will be confident in your ability to pay your housing costs each month.
- Total debt service ratio (TDS): This calculation takes all of the property expenses used to calculate the GDS and includes any other monthly payments you may have such as a student loan, car loan, minimum credit card payments, etc. The total of these costs is then divided by your gross annual income. If the percentage is 42% or less, the mortgage company will be confident in your ability to make all of your payments each month.
Credit score: Another measurement that lenders use to gain insight into your reliability as a borrower is your credit score. By reviewing your credit score, lenders can see whether you make payments on time, are responsible with the credit limits available to you (i.e. using less than 20%-30%), have long standing relationships with banks and lenders and have avoided opening too many new accounts. If you have a bad credit score, Ontario mortgage lenders will be hesitant to lend you money.
Employment and income: If you have a good job, it’s a good bet that your income is solid and stable. This is another indicator that it’s more than likely you can meet your financial obligations each month. Lenders will look at what type of employment you have (full time, part time, casual, seasonal, temporary) and how long you’ve been at your job. Your income can include a salaried job, investments or rental income. If you’re self-employed, you’ll have to prove your income by providing documents such as a cash flow statement, income statement and balance sheet, at least three years of tax returns, your business licence, articles of incorporation and your business and personal credit score.
If you have bad credit, low income and/or are looking for a no down payment mortgage in Ontario, you may have to look at private lenders. But be aware: private mortgages are short-term loans (up to three years), and private mortgage rates in Ontario (and across Canada) are much higher compared to traditional lenders.
Typical mortgage amount in Ontario
To calculate what the size of the mortgage on your Ontario property will be depends on the price of the home, your down payment and your mortgage interest rate.
According to data from the Canadian Real Estate Association (CREA), the average price of resale residential homes sold across the province of Ontario in February 2021 was a record $864,159, rising 24.5% from February 2020. A buyer who can make a 20% down payment ($172.831.80) will have to borrow $691,327.20.
On the same home, a buyer who can only make a 10% down payment ($86,415.90) will have to borrow $777,743.10. Keep in mind, if your down payment is less than 20% you will need to get mortgage loan insurance through the CMHC, Sagen or Canada Guaranty. This will protect your lender if for some reason you are unable to make your mortgage payments. Most insured mortgages require a down payment of at least 5% — that’s something to keep in mind if you’re considering a zero down mortgage in Ontario.
A mortgage affordability calculator for Ontario (also known as a mortgage payment calculator) makes it easy to estimate costs. A calculator will ask you to plug in the home’s price, your down payment amount, amortization period, mortgage rate and payment frequency.
Ontario’s housing market and home prices
The average price of resale residential homes sold across the province of Ontario in February 2021 was $864,159, but the average price of a home depends on where you live.
Ontario is home to Toronto, the most expensive city in Canada (and one of the most unaffordable cities in the world) where the benchmark price of a home is $1.3 million within the city itself, and $1.1 million within the Greater Toronto Area (GTA). Over the last five years, benchmark prices in smaller cities such as Hamilton, Guelph, Kingston, Kitchener-Waterloo and Niagara have nearly doubled. As of early 2021, housing markets across Ontario are seeing year-over-year increases of at least 20% as homebuyers leave the GTA.
Ontario closing costs and land transfer tax
A major purchase such as a new home involves more than just the cost of mortgage payments. There are other items that go hand-in-hand that you will need to budget for in order to complete the purchase of your new place.
Property valuation (appraisal) fee: If you default on the payment of your mortgage, your lender would receive your home as collateral to cover the cost. To ensure the value of your home equals the amount of the mortgage loan, lenders require an independent appraisal of your property to be performed.
Home inspection fee: Unless you’re a contractor, it’s hard to know 100% for sure if the home you’re considering buying is structurally sound or in need of any repairs or a new roof, furnace, etc. Hiring a home inspector will provide all the answers you need. They will inspect your prospective home from top to bottom and then provide you with a report recommending anything that needs to be done to the house.
Legal fees: The purchase of your new home will involve a variety of legal paperwork. Completing this paperwork will require the services of a real estate lawyer.
Title insurance: Another way to protect yourself against any unforeseen defects to your home you may discover after the deal is closed is title insurance. It covers you against losses you might incur due to undetected or unknown defects to the property. Title insurance can be obtained through your lawyer.
Mortgage default insurance: If you can only afford a down payment on your new Ontario home that is less than 20%, you are obligated to purchase mortgage loan insurance.
Home insurance: Homeowners insurance covers the cost to repair or rebuild your home after events like fire, smoke, theft, vandalism, a falling tree, or damage caused by weather such as lightning, wind, or hail. Most standard homeowners insurance policies also cover the replacement cost of furniture, clothing, and other possessions that you keep in your home. Most mortgage lenders will require proof that you have a valid home insurance policy as a condition of your mortgage.
Land transfer tax: When one person exchanges one piece of property for another another, land transfer tax must be paid. In Ontario, the land transfer tax amount depends on the price of the property you are purchasing. Here’s how it’s calculated:
- The first $55,000 is taxed at 0.5%
- The amount between $55,000 and $250,000 is taxed at 1%
- The amount between $250,000 and $400,000 is taxed at 1.5%
- The amount between $400,000 and $2,000,000 is taxed at 2%
- Any amount over $2,000,000 is taxed at 2.5%
If you’re buying a home in Toronto, you will have to pay two land transfer taxes. Toronto’s land transfer tax is calculated exactly the same as the provincial one. So if you’re buying a home in the city, be prepared to pay double.
Your questions about Ontario mortgages, answered.
Looking for mortgage info? Check out our Home Buyers Guide.
What’s the difference between a mortgage term and an amortization period?
Mortgage term: The mortgage term is the amount of time that you commit to your mortgage rate, lender and the terms and conditions of the contract. At the end of the term, you’ll renew your contract with the mortgage company for the remaining principal at a new rate. The process repeats until you’ve paid off the mortgage on your Ontario home. A mortgage term can vary in length, from six months to 10 years, with the most common term in Canada being five years.
Amortization period: The amortization period is the amount of time it will take you to pay off your entire mortgage. In Canada, the maximum amortization period is 35 years. But, if your down payment was less than 20% and you were required to purchase mortgage insurance from the CMHC, then your maximum amortization period is 25 years.
What’s the difference between an open mortgage vs. a closed mortgage?
Mortgage rates can vary depending on whether you get an open mortgage or a closed mortgage.
An open mortgage gives you the flexibility to pay off the mortgage on your house at any time. You can also refinance your mortgage, or renegotiate the terms. With a closed mortgage, if you pay it off before the mortgage term ends, you’ll have to pay a penalty.
Because the rules are more strict, closed mortgage rates in Ontario generally have lower interest rates compared to open mortgages in Ontario.
How much does it cost to live in Ontario?
The cost of living in Ontario depends on a few individual elements such as whether you rent or own a home, drive, commute via transit or bike, the cost of auto insurance, a bunch of other items that add up such as food costs, phone and internet, health and fitness, entertainment and pet ownership.
Housing will be the biggest consideration. The average resale price of a residential home in Ontario is $864,159, which is 27% higher than Canada’s national average ($678,091) as of February 2021. But across Canada’s most populous province, even smaller cities are seeing huge spikes in real estate prices that were previously confined to the Greater Toronto Area.
Not only does Ontario have more drivers than in any other province in Canada, it also has some of the highest car insurance costs. The average cost of an insurance policy for an Ontario driver is $1,505, according to the Insurance Bureau of Canada.
How much does getting a lower mortgage interest rate matter in Ontario?
Ensuring that the mortgage you get for your new Ontario house has a low interest rate will save you thousands of dollars in interest over the lifetime of your mortgage. But getting the lowest interest rate possible isn’t the only important aspect you should keep in mind when shopping for the best mortgage. Talk to an Ontario mortgage agent about negotiating these features into your contract.
Prepayments: You can save money on your mortgage by making sure your contract includes prepayment privileges. This allows you to pay extra money toward your mortgage. For example, say you were to inherit money from a relative. You could use the inheritance money to make a mortgage prepayment, which would reduce your mortgage principal and amortization period and lead to savings on the cost of interest.
Portability: Another feature to consider is making your mortgage portable. A few years from now, you may decide it’s time to move — or maybe you have to sell your home and move due to a job transfer. Whatever the case may be, a portable mortgage means you can take your current mortgage contract with you and apply it to your new home. This will save you money because you’ll avoid charges that would occur if you had to break your mortgage early and apply for a new one.
Your questions about LowestRates.ca, answered.
How are mortgage rates determined on LowestRates.ca?
LowestRates.ca works with 75+ lenders 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.
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