Three months worth of interest payments or an interest rate differential fee? You should do the math.
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Conventional vs. high-ratio mortgages: which is cheaper?
On LowestRates.ca, customers can start an application for a number of different mortgage products. The two main types of mortgages you can apply for are conventional mortgages and high-ratio mortgages.
With a conventional mortgage, the homebuyer has to make a down payment of at least 20% of the home’s purchase price.
A high-ratio mortgage, on the other hand, is where homeowners put down less than 20% of the purchase price as a down payment. If this happens, buyers are required to purchase mortgage insurance from the Canada Mortgage and Housing Corporation (CMHC).
Take a look at our comparison of high ratio mortgages and conventional mortgages 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: May 1, 2021
Fixed rate vs. variable rate mortgages: which is cheaper?
While searching for the cheapest mortgage rates in Ottawa, one of the main decisions homebuyers will need to make is whether to choose a fixed or variable rate mortgage.
While fixed and variable rates have been closer than ever on LowestRates.ca over the past year, there are some key differences to be aware of.
A fixed rate stays the same for the duration of your mortgage term. A variable rate, on the other hand, means that your rate won’t stay the same. Your lender will adjust it based on market conditions. In 2019, 80% of homebuyers in Ottawa opted for a fixed rate mortgage while the other 20% selected a variable rate.
Variable rates are historically lower than fixed rates in Canada. However, over the past year, something unusual has happened: fixed and variable rates have been pretty much tied. Fixed rates have actually averaged out to be a fraction of a percentage point lower.
Here’s a look at historical mortgage rate trends in Ontario over the past year.
5-year fixed vs. 5-year variable mortgage rates in Ontario
Last Updated: May 1, 2021
Factors that affect your Ottawa mortgage rate
Lenders look at a few things when deciding whether or not to approve your mortgage application, and what interest rates they’ll offer. Here are the major factors lenders consider when they calculate your mortgage rate for an Ottawa home.
Down payment: There’s no getting around it — the size of your down payment is the primary contributor to the size of your Ottawa mortgage loan. It also factors significantly into determining your mortgage rate. In Canada, your down payment must be between 5% to 20% of your home’s total sales price, depending on the price of your home. Here are the rules according to the federal government.
- A home that costs $500,000 or less: 5% of the purchase price
- A home that costs $500,000 to $999,999: 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: 20% of the purchase price
If your down payment is less than 20% of the total price of the home, you’ll need to purchase CMHC mortgage insurance and factor that cost into your budget.
Debt service ratios: In addition to your down payment, Ottawa lenders look at a number of other factors when calculating your mortgage rates. These are known as debt ratios and can be grouped into two categories:
Gross debt service ratio (GDS): To calculate your GDS, lenders determine how much of your paycheck will go towards housing. This includes your mortgage, property taxes, heating costs and 50% of your condo fees (if applicable). The lender then divides this by your gross annual income. If the result is less than 35%, your lender will feel confident in your ability to cover all your housing costs.
Total debt service ratio (TDS): Your TDS ratio is everything that comprises your GDS ratio plus any other monthly payments you have to make. These could include things like credit card debt, loan payments and car payments. The total is divided by your income. If the result is greater than 42%, your lender may doubt your ability to make your monthly payments.
Credit score: A credit score is a snapshot of your overall financial health, ranging from 300 to 900. A higher credit score means you’re a responsible borrower and present less risk to lenders, so you’ll be able to secure the lowest mortgage interest rate for your Ottawa home. If you have a lower credit score, lenders consider you financially risky and charge higher interest rates. Minimum score requirements vary by lender, but most major Canadian financial institutions want to see a credit score of at least 600. If you’re required to buy mortgage insurance from the CMHC because your down payment is less than 20% of the home’s purchase price, the CMHC requires a credit score of at least 680.
Income: To make sure you can cover your monthly payments, Ottawa mortgage companies want to see how much money you have coming in on a regular basis. When assessing your mortgage application, they’ll look at how much income you earn from sources such as a salaried job, rental income or investments, the type of employment (full-time, casual, temporary or seasonal) and the length of employment. If you’re self-employed, lenders will require tax returns for the last three years, a copy of articles of incorporation, business or GST licence for your business, your personal and business credit score and other supporting documents for your business such as an income statement, cash flow statement and balance sheet.
Typical mortgage amounts in Ottawa
The size of your mortgage will depend on where you live, your down payment and your mortgage interest rate. The benchmark price for a detached home in Ottawa is $593,300 as of November 2020, according to the Canadian Real Estate Association (CREA). For a buyer with a 20% down payment ($118,660) the mortgage would be $474,640. This amount doesn’t include interest paid over the lifespan of the mortgage, which depends on the mortgage interest rate and amortization period.
Remember, if your down payment is less than 20%, you’re required to buy CMHC mortgage insurance. This will increase the cost of your mortgage and the amount of interest you’ll pay. CMHC insurance premiums depend on the size of your down payment. Your mortgage insurance premium can be paid as a lump sum or added to your mortgage payments.
Ottawa housing market and home prices
The housing market in Ontario has been booming for years, yet Ottawa remains a reasonably priced market, popular amongst families and young people. Property values have increased, but at a much more manageable pace than the Toronto real estate market. Benchmark prices for single-detached family homes increased by 22.1% from $485,900 to $593,300 between November 2019 and November 2020.
Other forms of housing, such as townhomes and apartments also saw increases. The average price of a townhouse in Ottawa reached $385,600 in November 2020 (up 29.2% year over year), and the average price of a condo reached $378,900 (up 20.3%).
Take a look at the graphs below to get an idea of how the housing market in Ottawa has changed in the past year.
The price increases in Ottawa last year can largely be attributed to an increase in sales volume between 2019 and 2020. In November 2020, the Ottawa Real Estate Board reported 1,611 properties sold, an uptick of 26% from the same time last year.
Homes on the market in Ottawa take an average of 25 days to sell, as of November 2020.
Ottawa closing costs and land transfer tax
After buying your home, closing costs refer to all the odds and ends you need to close the deal. A general rule of thumb is to budget 1.5% of the home’s purchase price to cover closing costs (excluding the down payment). Closing costs may include:
Closing costs may include:
- Mortgage processing fees
- Appraisal fee
- Home inspection fee
- Title insurance
- Legal fees and disbursements
- Property tax adjustment
- Provincial sales tax (PST) on CMHC insurance. In Ontario, it's 8%
- Good and services tax (GST) or harmonized sales tax (HST) if you’re buying a brand new home or condo
Closing costs may also include a provincial and/or municipal land transfer tax. The City of Ottawa charges homebuyers a provincial land transfer tax. The province of Ontario calculates land transfer in the following way:
|Purchase Price||Tax Rate|
|$2 million +||2.5%|
Example: on a home worth $500,000, you’d pay $6,475 in land transfer taxes.
Your questions about Ottawa mortgages, answered.
What’s the difference between an open mortgage vs. a closed mortgage?
In addition to choosing between a fixed or variable rate mortgage, Ottawa buyers will also need to decide between two types of mortgage payment structures: open or closed.
Open mortgage: This type of mortgage can be paid off in full at any time without penalty, and typically has a shorter term (up to five years). Open mortgages are more flexible and are geared toward people who want to make additional or increased mortgage payments, pay off the mortgage early, or move to a different home in the near future. But there’s a tradeoff: open mortgages interest rates are usually a little bit higher.
Closed mortgage: You’ll typically pay lower interest rates with a closed mortgage, but you’re required to make regular payments on a fixed schedule for the entire term. If you want to refinance, renegotiate or pay off your closed mortgage before the term is up, you’ll be charged a penalty. However, some lenders will allow you to make accelerated payments up to a certain amount each year. Every lender will have its own terms and conditions around closed mortgage prepayments.
What’s the difference between a mortgage term and an amortization period?
Mortgage term: Homeowners are committed to their lender and mortgage contract for the duration of their mortgage term (the length of which is specified in the contract). At the end of the term, borrowers can renew their contract at a new rate. The most popular mortgage term in Canada is five years, though terms can range from six months to 10 years.
Amortization period: The amortization period refers to the duration of your mortgage. In other words, the total amount of time it will take you to pay off your loan’s principal plus the interest. In Canada, the maximum amortization period is 35 years. If your down payment is less than 20% of the total price of the home and you’re required to purchase CMHC mortgage insurance, your maximum amortization period is 25 years.
How much does it cost to live in Ottawa?
Depending on whether you’re a homeowner, renter, driver or commuter, your cost of living in Ottawa will vary.
There are some things to look out for, however, if you’re considering moving to Ottawa from another province.
In addition to your mortgage interest rate, prospective Ottawa homebuyers should consider a number of other costs to consider when thinking about relocating. If you own a vehicle, one of the biggest costs may be auto insurance. While Ottawa residents pay some of the lowest car insurance premiums in Ontario, the provincial average is still high (Ontario has the second highest car insurance rates in Canada). Ottawa has a lot of attractions that are popular with tourists and residents alike, which could also put additional strain on your wallet.
How much does getting a lower interest rate matter in Ottawa?
If you’re house hunting in Ontario, securing a low Ottawa mortgage rate is one great way to save money on your mortgage. However, it’s one of many things you can do to increase the overall affordability of your mortgage. Some of these features might include prepayment privileges and portability.
Prepayment privileges: Some banks and brokers will offer different prepayment terms, so it’s important to raise the issue before you sign your contract. A prepayment privilege allows you to pay off your mortgage early without having to pay an additional fee.
Penalties: If you need to break your mortgage, which you may need to do when you refinance or move, you may be required to pay thousands of dollars in penalties. While you may wind up with a better rate, if you choose to go with a different lender, it’s important to look at the fine print to ensure that it won’t cost you more than you’ll gain.
Portability: One way to avoid these penalties is to negotiate a portable mortgage. This means that if you move, you can transfer your mortgage to a new home and combine it with an additional mortgage loan.
Your questions about LowestRates.ca, answered.
How are mortgage rates determined on LowestRates.ca?
LowestRates.ca works with 75+ Canadian banks and brokers to bring you Ottawa’s best mortgage rates. 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 rates for Ottawa. 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 not only in Ottawa, but across 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 and we’re adding more lenders all the time. 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.
This offer condition can save you a lot of headaches on existing homes and even new builds.