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Canada Mortgages Guide

the mortgages in Canada. The minimum down payment is 5% on the first $500,000, 10% on $500,000-$1 million, and 20% on the $1 million+ (the "down payment rules" — the "CMHC insurance requirement"). The mortgage stress test requires the borrower to qualify at the minimum qualifying rate of 5.25% or the "contract rate plus 2%" (the "mortgage qualifier rate" — the "B-20 guideline" — the "OSFI stress test"). The fixed-rate mortgage locks the interest rate for the term (the "1-year, the 2-year, the 3-year, the 4-year, the 5-year, the 7-year, the 10-year fixed rate"). The variable-rate mortgage (the "VRM") has the interest rate that changes with the "prime rate" (the "Bank of Canada rate"). The CMHC default insurance is required for the "high-ratio mortgage" (the down payment below 20%) — the CMHC premium is 0.6% to 4.0% of the mortgage amount (depending on the down payment percentage).

Mortgage Types

• Fixed-rate mortgage: The "fixed interest rate for the term" — the "fixed payment for the term". The typical terms: the 1-year fixed (5.5% to 6.5%), the 3-year fixed (4.5% to 5.5%), the 5-year fixed (4.0% to 5.0%). The fixed-rate mortgage is the most popular in Canada (the "majority of the Canadian mortgages are the fixed-rate").
• Variable-rate mortgage (VRM): The "variable interest rate" — the "interest rate = the prime rate minus or plus the spread". The payment stays the same (the "fixed payment"), but the portion of the payment that goes to the interest changes with the rate. The "trigger rate" — the rate at which the payment no longer covers the interest (the "negative amortization").
• Adjustable-rate mortgage (ARM): The "adjustable payment" — the "payment changes with the rate". The ARM is less common in Canada than the VRM.
• Open mortgage: The "open term" — the "no prepayment penalty" — the "full prepayment anytime". The interest rate is higher (the "open rate premium" — 6% to 8%). The open mortgage is for the "short-term financing" and the "home sale proceeds waiting".
• Closed mortgage: The "closed term" — the "limited prepayment" — the "prepayment penalty". The interest rate is lower (the "closed rate discount"). The closed mortgage is the standard for the Canadian home buyers.

Down Payment & CMHC Insurance

• Down payment requirements: 5% on the first $500,000 of the purchase price. 10% on the portion from $500,000 to $1 million. 20% on the portion above $1 million (the "no CMHC insurance" for the down payment of 20%+).
• CMHC insurance premium: 4.0% for the 5% down payment (the "high-ratio premium"). 3.1% for the 10% down payment. 1.7% for the 15% down payment. 0.6% for the 20% down payment (the "conventional mortgage" — the "no CMHC insurance required").
• CMHC insurance alternatives: The "Sagen" (the "Genworth" — the "private mortgage insurance") and the "Canada Guaranty" (the "private insurer"). The private insurers have the similar premium rates to the CMHC.
• First home buyer incentives: The "First-Time Home Buyer Incentive" (the "shared-equity mortgage" — the "5% or 10% from the government" — the "no interest loan" — currently paused). The "Home Buyers' Plan" (the "HBP" — the "RRSP withdrawal up to $60,000" — the "first home purchase").

Mortgage Renewal & Penalty

• Renewal process: The mortgage term typically ends after 3 to 5 years. The lender sends the "renewal letter" 90 to 120 days before the maturity date. The borrower can "renew with the current lender" (the "no penalty") or "transfer to the new lender" (the "mortgage transfer" — the "switch" — the "legal and appraisal fees apply").
• Prepayment penalty (fixed mortgage): The "interest rate differential (IRD)" — the "greater of 3 months interest or the IRD". The IRD is the difference between the original rate and the current rate for the remaining term (the "IRD penalty" — the "break penalty").
• Prepayment penalty (variable mortgage): The "3 months interest penalty" (the "standard variable penalty"). The variable mortgage penalty is typically lower than the fixed mortgage penalty.
• Prepayment privileges: The "lump-sum prepayment" (the "10% to 20% of the original mortgage amount per year"), the "increased payment" (the "increase the regular payment by 10% to 20%"), and the "double-up payment" (the "double the payment anytime").

For the property tax and the land transfer tax, see our Property Tax Guide →. For the first-time home buyer programs, see our First-Time Home Buyer Guide →.