How to Get a Mortgage in Canada: A Complete Beginner's Guide
If you want to buy a home, you'll almost certainly need a mortgage first, and the jargon trips everyone up. So let's go through the basics in plain English: what a mortgage actually is, and the terms you'll hear over and over, like down payment, fixed, variable, amortization, term, and pre-approval.
Down payment and insurance
A mortgage is the money the bank lends you to buy a property. The math is simple: if the home is $700,000 and you have $100,000, you need a $600,000 mortgage. What matters is the percentage you put down. At 20% or more, you avoid mortgage insurance and qualify for a lower rate. Under 20%, the bank requires insurance (through CMHC, which the government fully backs, or Sagen or Canada Guaranty) and your amortization drops from 30 years to 25, which raises your monthly payment. Put 20% down and you'll also pay roughly $300 to $400 for an appraisal.
Fixed vs variable
A fixed rate stays the same for your whole term, say 3, 5, or 7%. It's usually the pricier option (you're paying for certainty), and breaking it early carries a bigger penalty. A variable rate moves with the bank's prime rate, so it can change month to month. It's usually cheaper over the long run and costs less to break, but you carry the risk of rates rising.
Amortization vs term
These two get confused constantly. Amortization is the total time to pay the whole mortgage off, usually 25 or 30 years. The term is the shorter window your rate is locked, often five years, after which you renegotiate. On a variable mortgage you get a set discount off prime for the term, for example prime minus half a percent, and that discount is guaranteed even as prime moves.
Payment frequency
You can pay monthly (12 payments a year) or semi-monthly (24). Or you can go accelerated bi-weekly, which is 26 payments, two more than semi-monthly. Those extra payments go to principal, so an accelerated bi-weekly schedule can pay off a 25-year mortgage in roughly 22 years and save you real money.
Get a fully-underwritten pre-approval
Before you shop, get pre-approved, but know there are two kinds. A quick phone pre-approval that isn't fully underwritten, and a real one where the lender verifies your pay stubs, employment letter, and documents. Always get the fully-underwritten version. And shop around: banks and brokers offer different deals, so a good broker can find the lender that fits your situation. If you'd like a straight answer for your own situation, fill out the form below and book a free consultation. Stay well and take care.
Frequently asked questions
How much down payment do I need to buy a home in Canada?
If you put down less than 20%, you must pay mortgage insurance (through CMHC, Sagen, or Canada Guaranty) and your amortization drops to 25 years. At 20% or more you avoid insurance and can get a lower rate.
What's the difference between a fixed and a variable mortgage?
A fixed rate stays the same for the whole term and is usually pricier with a larger penalty to break. A variable rate moves with the bank's prime rate, is usually cheaper over time, and costs less to break.
What is the difference between amortization and term?
Amortization is the total time to pay off the mortgage, usually 25 or 30 years. The term is the shorter period your rate is locked, often five years, after which you renegotiate.