Mortgages in Canada: The Basics

What it is

A mortgage is a large loan used to buy a home, secured against the property itself — meaning if you stop paying, the lender can ultimately force a sale to recover its money. Because the loan is secured, mortgages carry far lower interest rates than any unsecured borrowing. For most Canadians, a mortgage is the biggest financial commitment they will ever make, and the one where small differences in terms cost or save tens of thousands of dollars.

How it works

1. You save a down payment. Minimums are tiered: 5% on the first $500,000 of the price and 10% on the portion above that. A $600,000 home needs $25,000 + $10,000 = $35,000 down.
2. You get pre-approved. A lender (or broker) verifies your income, debts, and credit, and tells you roughly what you can borrow.
3. If your down payment is under 20%, you need mortgage default insurance (from CMHC or a private insurer like Sagen or Canada Guaranty). This protects the lender, not you — but it’s mandatory for high-ratio mortgages, and the premium is added to your loan.
4. You choose a term and rate type. The term (commonly 5 years, sometimes 1–3 or 7–10) is how long your rate and conditions are locked in; the amortization (usually 25 years) is how long full repayment would take. At the end of each term you renew — possibly with a different lender.
5. Fixed vs variable. Fixed rates stay constant for the term; variable rates move with the lender’s prime rate (usually quoted as prime minus a discount).
6. The stress test. Federally regulated lenders must qualify you at the higher of your contract rate plus 2%, or the benchmark qualifying rate — so you have to prove you could afford payments even if rates rise. Check the current benchmark before house-hunting.
7. You make regular payments (monthly, bi-weekly, or accelerated bi-weekly) of principal plus interest until renewal or payoff.

Two 2026-relevant rules worth knowing: since December 15, 2024, all first-time buyers and buyers of newly built homes can take a 30-year amortization on an insured mortgage (previously capped at 25 years), which lowers monthly payments but increases total interest. And the insured price cap rose from $1 million to $1.5 million, so homes up to that price can be bought with less than 20% down.

What it’s used for

• Buying a principal residence — the overwhelmingly common use.
• Buying a rental or investment property (different rules, usually 20%+ down).
• Refinancing later to access equity, consolidate debt, or get a better rate.

Who it’s NOT for (yet): anyone without stable income, an emergency fund, and a realistic picture of total ownership costs — mortgage payments are only part of it (property tax, insurance, maintenance, and possibly condo fees all stack on top).

Who provides it in Canada

The Big Five banks, Desjardins, National Bank, credit unions, and monoline lenders (like MCAP or Merix) sold through mortgage brokers. Brokers are worth knowing about: they’re free to you (lenders pay them) and can access rates from dozens of lenders, including ones with no branches.

What it costs

• Interest — the big one. Check current fixed and variable rates; even a 0.25% difference on a large mortgage compounds enormously over 25 years.
• Mortgage default insurance premium (under 20% down) — a percentage of the loan added to the mortgage; check the current premium schedule.
• Closing costs — land transfer tax, legal fees, title insurance, adjustments. Budget roughly 1.5–4% of the price on top of your down payment, and verify for your province (Toronto has a second municipal land transfer tax).
• Penalties — breaking a fixed mortgage early can trigger large prepayment penalties (often the greater of three months’ interest or an interest-rate-differential calculation). Read this clause before signing anything.

Newcomer notes

You can get a mortgage as a newcomer — several banks have newcomer mortgage programs — but you’ll need proof of income (Canadian employment letter/pay stubs help enormously), a down payment saved in a Canadian account, and ideally some credit history. Many newcomers rent for a year or two first while building the file and the down payment. Your foreign assets generally don’t count unless documented and transferable.

Risks / watch-outs

• Renewal shock. Your payment is only locked for the term. If rates are higher at renewal, payments jump — the stress test exists precisely because this happens.
• Longer amortization = much more interest. The 30-year option lowers payments but can add tens of thousands in lifetime interest. Run the numbers both ways.
• Variable rates can rise. The discount looks attractive until prime climbs. Only choose variable if your budget survives higher payments.
• Buying more house than you can carry. Lenders approve maximums, not sensible budgets. Total housing costs should leave room for everything else in your life.

FAQ

How much do I need for a down payment in Canada? 5% on the first $500,000 and 10% above that, up to the $1.5M insured cap. Twenty per cent or more avoids default insurance entirely.

What’s the difference between term and amortization? Amortization is the total repayment timeline (25 or 30 years). The term (often 5 years) is how long your current rate and contract last before you renew.

Fixed or variable — which is better? Neither, universally. Fixed buys certainty; variable has historically often cost less but exposes you to rate rises. The right choice depends on your risk tolerance and whether your budget handles payment increases.

Do I need a mortgage broker or can I go to my bank? Both work. A broker shops multiple lenders at no cost to you; your bank offers convenience and an existing relationship. Many buyers do both and compare.

Can newcomers get a mortgage without permanent residency? Some lenders and newcomer programs accommodate work-permit holders, usually with larger down payments and full income documentation. Policies vary — check current newcomer mortgage programs directly.

Educational content only — not financial advice. Rules and promotions change; verify current details with the provider or CRA.