Next, let’s look at the factors that impact rates. These explain why quotes you’ve personally received may differ from market averages.

The prime rate

The prime rate is the figure set by central banking authorities based on monetary policy. In other words, it’s beyond your control.

Here’s how Canada’s prime rate has changed over the past 10 years.

Canadian prime rate trends

When looking at types of mortgages, there are three things to consider: fixed-rate, variable-rate, and the mortgage’s purpose (i.e. buying a primary residence or investment property).

Fixed-rate

A fixed-rate mortgage, as the name would suggest, sees you paying the same interest rate for the duration of your term. These rates are typically higher to compensate lenders for the increased risk.

This risk comes in the form of potential prime rate changes. If the Bank of Canada raises its policy interest rate above your fixed-rate, your mortgage lender will have essentially sold you a loan at less than market value.

Fixed-rate mortgages are not always more costly than variable ones; recently in Canada, we’ve seen fixed rates dip below their variable counterparts.

Variable rates

Variable rates can fluctuate over your mortgage term; they do so along with the prime rate.

Variable-rate mortgages are typically structured with interest rates of a certain percentage above or below prime. For example, you might pay prime + 0.50%. The prime rate is where the variable aspect comes in; your rate’s relationship to prime will typically stay the same throughout your term.

Because variable mortgage rates shift with the prime rate, lenders take on less risk. As such, some of the best mortgage rates in Ontario are variable.

The mortgage’s purpose

You’ll typically find the best mortgage rates in Ontario when shopping for a new home or refinancing an existing mortgage. This, again, reflects the level of risk lenders take on.

According to the Canadian Bar Association, first mortgages take priority above other liens on the property. That’s why you’ll find higher Ontario mortgage rates for refinancing and securing a home equity loan. Those loans take a backseat to the primary mortgage when it comes to debt collection.

Down payment size

If you’re buying a new home, the size of your down payment is also a major determinant of your interest rate.

The Canadian government has introduced minimum down payments dependent on your home’s purchase price. They are as follows.

A larger down payment will not necessarily result in a lower interest rate, however. This is because higher down payments may not require mortgage insurance.

In other words, the lender will need to take on more risk even though you’re borrowing a lower percentage. If you end up defaulting, they won’t be reimbursed by an insurer.

When it comes to securing the lowest mortgage rates in Ontario, it generally makes sense to be what’s known as a “high-ratio borrower.” You’ll end up borrowing more money but at a lower rate.

There are some exceptions, of course, which we’ll explore in an upcoming section.

Intended property use

If you’re buying a primary residence for yourself, you’ll typically find the lowest mortgage rates in Ontario relative to purchasing an investment property.

This is, again, because investment properties typically come with a higher risk for the mortgage lender. This is particularly true if investment properties produce a substantial portion of your income. In such a case, a real estate meltdown may impact your ability to make payments.

Your credit score

A high credit rating demonstrates fiscal trustworthiness. By now it should be no surprise that this comes down to risk on the part of the lender.

If you have a poor credit rating because of past loan defaults, high credit utilization, and other negative marks, your lender will charge a higher interest rate to compensate for taking on increased risk.

If your credit score is below a certain threshold, you may unfortunately not be approved for a mortgage at all.

Amortization period

A mortgage’s amortization period is simply the term in which you’ll be paying it. A longer amortization period typically comes with higher interest rates. This is particularly true with periods longer than 25 years, which do not qualify for mortgage insurance.