Mortgage FAQ 2025 – Empower Your Journey: Inspiring Homeownership FAQ

A mortgage is a loan provided by a lender (such as a bank or credit union) to help you purchase a home. The property acts as collateral for the loan. You agree to repay the borrowed amount, plus interest, over a set term. In Canada, mortgages typically have amortization periods of up to 25 years for insured mortgages and up to 30 years for uninsured ones.

The minimum down payment depends on the home’s purchase price:

$1.5 million or more: 20% of the purchase price. If your down payment is less than 20%, you’ll need mortgage default insurance

Up to $500,000: 5% of the purchase price.

$500,001 to $999,999: 5% on the first $500,000 and 10% on the remainder.

Mortgage default insurance protects the lender if you fail to make payments. It’s mandatory when your down payment is less than 20% of the home’s value. This insurance is provided by companies like CMHC, Sagen, or Canada Guaranty. The premium ranges from 2.8% to 4% of the mortgage amount and can be added to your mortgage balance.

Fixed-rate mortgage: The interest rate stays the same for the entire term, offering predictable payments.

Variable-rate mortgage: The interest rate fluctuates based on the lender’s prime rate. Payments may change if rates rise or fall. Fixed rates provide stability, while variable rates can offer savings if interest rates decrease.

The stress test ensures borrowers can handle higher interest rates. Lenders calculate your ability to pay using the greater of:

• The Bank of Canada’s qualifying rate (currently around 5.25%), or
• Your contract rate plus 2%. This test applies to all federally regulated lenders and affects how much you can borrow.

A mortgage term is the length of time your interest rate and conditions are locked in. Common terms range from 6 months to 10 years, with 5 years being the most popular. At the end of the term, you can renew or refinance your mortgage.

Amortization period: The total time to pay off your mortgage (e.g., 25 years).

Term: The length of your current agreement with the lender (e.g., 5 years). You’ll likely renew your mortgage several times during the amortization period.

Prepayment privileges allow you to pay extra toward your mortgage without penalties. Common options include:

Making lump-sum payments annually. These privileges help reduce your principal faster and save on interest.

Increasing your regular payment by up to 15–20%.

Breaking a mortgage before the term ends usually incurs penalties:

Variable-rate mortgage: Penalty is typically three months’ interest. Always check your lender’s terms before making changes.

Fixed-rate mortgage: Penalty is the greater of three months’ interest or the Interest Rate Differential (IRD).

A high-ratio mortgage occurs when your down payment is less than 20% of the home’s value. These mortgages require default insurance. Conversely, a conventional mortgage has a down payment of 20% or more and does not require insurance.

Refinancing means replacing your existing mortgage with a new one, often to:

Secure a lower interest rate. You can refinance up to 80% of your home’s appraised value. Penalties may apply if you break your current term.

Access home equity.

Consolidate debt.

Closing costs typically range from 1.5% to 4% of the purchase price and include:

Home inspection. Budgeting for these costs is essential to avoid surprises.

Land transfer tax.

Legal fees.

Title insurance.

Yes. Many lenders offer programs for newcomers with limited credit history. Requirements often include:

Canadian bank account. Some lenders accept international credit reports or alternative documentation.

Proof of income.

A larger down payment (sometimes 35%).

The HBP allows first-time buyers to withdraw up to $35,000 from their RRSP to buy or build a home. You must repay the amount within 15 years, starting the second year after withdrawal. This program helps boost your down payment without tax penalties.

Interest rate changes impact:

Fixed-rate mortgages: Payments remain stable until renewal. When rates rise, affordability decreases, so qualifying for a mortgage becomes harder. Monitoring rate trends is crucial for planning.

Variable-rate mortgages: Payments may increase or decrease.