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Posted rates for closed mortgages with amortization under 25 years. Data source: Canada's major banks
NerdWallet Mortgage Expert/Spokesperson
September has begun with good news for mortgage shoppers. On September 4, the Bank of Canada reduced its overnight rate by 25 basis points for the third time in three months. That means another reduction in variable mortgage rates.
Once the rate cut is absorbed by the nation’s lenders, variable mortgage rates will be around 5.9% at Canada’s biggest banks. They’ll be closer to 5.25% at some brokers, though. If you’re in the mood for a variable, be sure to weigh all of your options to ensure you’re not overpaying.
Fixed mortgage rates are as low as they’ve been in over a year. As of September 4, five-year fixed rates are below 4.3% at some brokerages, while three-year fixed rates can be found for less than 4.5%.
Government bond yields, which determine fixed rates, are stable, which means fixed rates aren’t likely to rise or fall by much in the coming days. A recent forecast by the British Columbia Real Estate Association sees fixed rates holding steady for the rest of the year.
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A lender’s prime rate is typically used to set variable mortgage rates.
If you’ve ever visited a bank’s mortgage rate page, you may have seen its variable mortgage rates explained as “prime minus X%”.
As you see in the table, the prime rate at all Big Six banks is identical. That’s because each bank bases its prime rate on the Bank of Canada’s overnight lending rate.
It’s worth noting, however, that TD is unique among these lenders in that they have their own prime mortgage rate, which is currently 6.70%.
| Institution | Prime rate |
|---|---|
| BMO | 6.45% |
| CIBC | 6.45% |
| National Bank | 6.45% |
| Scotiabank | 6.45% |
| RBC | 6.45% |
| TD | 6.45% |
As interest rates continue trending down and bond prices solidify at lower levels, fixed mortgage rates should also become more affordable.
It ultimately depends on lenders, who tend to raise fixed rates much faster than they decrease them. Bond yields sank rapidly throughout July 2024, for example, but fixed rates held relatively steady throughout the month.
After the Bank of Canada cut its overnight rate to 4.5% on July 24, the question is how much will variable rates decrease over the remainder of 2024.
The Bank isn’t likely to reduce the overnight rate as aggressively as it jacked it up. Doing so might pump a little too much fuel into the economy, which could trigger another ramp-up in inflation. If the Bank’s July cut leads to neutral or positive results, we might be able to expect another two modest cuts before the end of the year.
If you want the lowest current rate: Fixed-rate mortgages historically have lower rates than a variable mortgage of the same term.
If you think rates will fall during your term: Variable-rate mortgages let you take advantage of dropping rates. The question is when and how much rates may drop during your term. If you’re paying a higher rate out of the gate for a variable mortgage, your break-even point won’t occur until some time after rates go down.
If you have a tight budget: You can lock in a mortgage payment with a fixed-rate mortgage. If rates go up with a variable-rate mortgage and you don’t have wiggle room in your budget, you could put your home at risk.
If you think you’ll prepay: You’ll generally pay a lower prepayment penalty on a variable-rate mortgage than on a fixed-rate mortgage.
A fixed mortgage rate will not change for the entirety of your mortgage term, which is how long your current mortgage contract is in effect. Even if mortgage rates rise or fall during your term, the rate attached to your mortgage will not change — nor will the principal and interest portions of your mortgage payment.
A variable mortgage rate could rise or fall during the mortgage term. That’s because variable mortgage rates are based on lenders’ prime rates, which increase or decrease whenever the Bank of Canada adjusts its overnight rate.
These are a bank’s publicly advertised mortgage rates. They’re higher than its special rates. One theory behind why posted rates are so high is that they are intended to be negotiated down during mortgage discussions to make borrowers feel as if they scored a great deal. And if a borrower doesn’t negotiate, the bank can charge the full posted rate and make more money.
These are posted rates that have been discounted. Some banks’ discounted rates are also the rates they offer their mortgage broker partners.
Many lenders publish mortgage interest rates alongside corresponding annual percentage rates (APR). An APR includes any additional fees the lender may charge, so it’s a more accurate indication of what a mortgage might cost. When comparing current mortgage rates among lenders, always try to compare APRs to get a more accurate sense of what each loan might cost you.
Nerdy Tip: Make yourself familiar with a bank’s posted and discounted rates to put yourself into a stronger negotiating position. No matter how well you prepare yourself, however, know that the rate you’re offered will ultimately depend on your financial situation.
You wouldn’t normally buy the first car you see at the first dealership you visit.In the same vein, you shouldn’t commit to a mortgage until you’ve compared multiple offers across different lenders.
You can search for location-specific rates to get started:
When comparing mortgages, don’t simply look at the current mortgage rates on offer. You have to compare the conditions of the loans you’re investigating, too.
Some attractive rate offers, for example, might come with down payment conditions that not all borrowers will be able to meet. Other rates might only apply to term lengths or rate types that don’t align with your homeownership plans.
In addition to affecting the cost of your home loan, current mortgage rates also impact how much mortgage you can qualify for by influencing the mortgage stress test.
If you’re applying for a mortgage at a federally regulated financial institution, the stress test requires you to qualify at either 5.25% or the rate being offered plus 2%, whichever is higher. If a lender offers you a rate of 5%, for example, your finances would have to support the same loan at 7% for you to qualify.
If that’s not the case, your lender will reduce the amount you’re offered until you can pass the stress test at the qualifying rate.
A credit score of 680 or higher will help you get approved for a mortgage at most Canadian lenders. With a longer list of lenders willing to work with you, you’ll have more offers to choose from — and a better shot at being offered the best mortgage rate.
Before applying for a mortgage, check your credit score. If there are some financial habits you can tweak to improve your credit score, get tweaking.
If your credit score is below 680, you should still be able to apply for a mortgage with a B lender.
If you’re carrying debt from a credit card, personal loan or line of credit, lenders may question your ability to afford a mortgage payment. Any risk they see could give them a reason to offer you a higher rate.
Don’t accept the first rate offer you’re presented with.
Negotiating is a must during the mortgage process. Even if your lender isn’t willing to decimate its rate offer for you, getting a little shaved off your rate can make a significant difference.
Here’s a quick example using a mortgage of $400,000.
In this case, a few minutes negotiating a slightly lower rate could save you about $50 every month.
As of September 2024, bond market activity indicates that fixed mortgage rates are likely to remain stable in the short term, although lenders are in a competitive/desperate situation due to the weakness of the housing market and are likely willing to negotiate. Variable mortgage rates will continue decreasing each time the Bank of Canada lowers its overnight rate. There could be another two rate cuts coming before the end of 2024.
Is 5% a good mortgage rate?As of September 2024, 5% would be higher than what many brokerages are offering on three- and five-year fixed-rate mortgages. You’re unlikely to find a rate of 5% on shorter fixed-rate terms. For a variable-rate mortgage, you’ll probably pay well above 5% for the rest of the year.
Broker vs. bank: Who offers the best current mortgage rates?When getting a mortgage, you can go directly to a lender, like a bank, or work with a mortgage broker.
Generally speaking, a mortgage broker should offer you a wider array of options. Unlike a bank’s mortgage advisors, brokers aren’t tied to a single financial institution. They can field offers from multiple lender partners, which might include B lenders and private lenders, in addition to some Big Six banks.
Part of a mortgage broker’s job is to negotiate a better rate for you. They only earn a commission when a mortgage is finalized, so it’s in their best interest to negotiate a mortgage you can afford to sign. Bank employees with revenue targets, however, may not feel quite as motivated to cut you a deal.
