- Population: 14,223,942.
- Median after-tax income: $70,100.
- Average family size: 2.9 people.
- Number of homeowners: 3.72 million.
- Homeowners without mortgages: 1.5 million.
- Homeowners with mortgages: 2.22 million.
- Mortgages in arrears: 1,648.
- Apartment vacancy rate: 1.8%.
Ontario mortgage rate update: April 2023
Ontario home buyers are facing a somewhat easier mortgage market as spring rolls on.
After the collapse of Silicon Valley Bank and Signature Bank in the U.S., and the wobbling of European banking giant Credit Suisse, the yields on two-, three- and five-year government bonds took a nosedive in mid-March. There were hopes that corresponding fixed mortgage rates, which typically follow the path of those bond yields, would also drop off.
That hasn’t happened on a grand scale, but some lenders in Ontario have dropped their rates on fixed-rate mortgages. When rates fall, it can be a sign of economic uncertainty or that lenders are becoming more competitive in preparation for the spring and summer housing markets. Considering both of those scenarios could be in effect for some time, fixed rates might improve further in the coming months.
The Bank of Canada’s April 12 decision to hold its overnight rate at 4.5% means no further upward pressure on variable mortgage rates.
When the Bank does eventually begin reducing the overnight rate, which could be as soon as late 2023, variable rates will follow suit. (A drop of .25% in the overnight rate, for example, should translate to an equal decline in lenders’ variable rates.) Until that happens, variable rates will remain elevated.
2023 Mortgage rate projections for Ontario
Fixed mortgage rates
Economic instability generally results in lower fixed mortgage rates, so if Canada’s economy sputters or enters a recession in 2023, fixed rates could decline.
Projecting how far they fall is a tough ask, though. Because fixed mortgage rates are dictated by activity in the government bond market, which itself is determined by investor behaviour, they can be hard to predict, especially over the long-term.
You can sometimes get a sense of where fixed mortgage rates are heading if you keep an eye on the government bond market. If the yields on five-year bonds trend downward for an extended period, for example, five-year fixed rates should follow suit to some degree.
Variable mortgage rates
A reduction in variable mortgage rates is still possible in 2023, but it all depends on the Bank of Canada’s battle with high inflation.
In March, inflation was 4.3%, down from 5.2% in February, but still considerably higher than the 2% inflation rate the Bank has been trying to achieve by raising its overnight rate. Until inflation has established a downward trend the Bank feels it can trust, it won’t feel safe dropping its overnight rate, which would bring variable rates down, too.
In its most recent Monetary Policy Report, released April 12, 2023, the Bank of Canada said inflation “should come down quickly to around 3% in the middle of this year”. If the Bank’s projection is accurate, that could mean somewhat lower variable rates by the fall.
Fixed- or variable-rate for 2023?
Deciding whether to go with a fixed- or variable-rate mortgage can be difficult. But the current interest rate environment has fixed-rates looking a little more advantageous — in the short-term, at least.
Variable rates are currently higher than fixed rates, and are likely to remain the more expensive option until at least the end of the year. All things being equal, opting for a lower fixed-rate should be the cheaper option.
But because variable rates will begin coming down once the Bank of Canada lowers its overnight rate, fixed rates may not be the most affordable option for long. So if you’re leaning toward a fixed-rate mortgage, you may want to consider a one- or two-year term.
When it comes time to renew your mortgage, you’ll hopefully get to choose between a fixed-rate similar to the one you originally signed up for and a variable rate that is lower than anything available today. Lock in for a five-year term and you could miss out on an opportunity to save.
Because one-, two- and three-year fixed-rate mortgages are proving so popular with borrowers, the rates can be considerably higher than what you’d pay on a traditional five-year term. But they might still be lower than the variable rates on offer.
Ontario housing market snapshot
When buying a home in Ontario, the size of your mortgage will be greatly impacted by the province’s high housing prices. Even though sales have been significantly lower over the first quarter of 2023 than they were a year ago, prices haven’t exactly collapsed.
In March, the average price of homes sold in Ontario was $881,946. While that’s a fairly substantial 16.4% decrease compared to March 2022, it’s still bound to be a budget-stretching amount for many home buyers.
The minimum down payment for a home at that price is $63,195. Assuming a 5% fixed interest rate and a 25-year amortization, the mortgage on the remaining $818,751 would result in:
- Monthly payments of $4,952.
- A total interest cost of $634,211.
- A mortgage default insurance premium of $32,750.
- A total mortgage cost of $1,485,712.
» TRY our Ontario mortgage payment calculator
What’s a good mortgage rate in Ontario?
There are two ways to answer this question: by looking at mortgage rates today and looking at them historically.
If we’re talking current rates, a “good” mortgage rate will be the lowest rate you can qualify for on a mortgage that suits your unique financial situation. For example, if most lenders are offering rates around 5% and your mortgage broker helped you score one at 4.75%, you nabbed a good rate for sure.
You can also get a sense of what constitutes a “good” rate by comparing today’s rates to those offered in years past. According to Statistics Canada, the average conventional mortgage lending rate for loans with 5-year terms was 7.18% in 2001, 4.57% in 2011, and 3.28% in 2021.
You can see that while 5% would have been an excellent mortgage rate in 2001, relative to the average, it wouldn’t have been so great in 2021.
Although mortgage interest rates are higher in 2023 than they were in 2022, looking back over the past few decades shows that mortgage rates are still low by historical standards.
And it’s important to keep in mind that a lender’s advertised rate is only the beginning of the story. The actual mortgage rate you’re offered will be determined by your credit score and other personal financial factors.
| Year | 1-year mortgage rate | 3-year mortgage rate | 5-year mortgage rate |
|---|---|---|---|
| 2022 | 4.46 | 4.90 | 5.65 |
| 2021 | 2.80 | 3.49 | 4.79 |
| 2020 | 3.25 | 3.79 | 4.95 |
| 2019 | 3.64 | 4.17 | 5.27 |
| 2018 | 3.47 | 4.23 | 5.27 |
| 2017 | 3.16 | 3.48 | 4.77 |
| 2016 | 3.14 | 3.39 | 4.66 |
| 2015 | 2.97 | 3.42 | 4.67 |
| 2014 | 3.14 | 3.70 | 4.89 |
| 2013 | 3.08 | 3.74 | 5.23 |
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How to find the best mortgage rate in Ontario
Let’s take a closer look at mortgage rates in Ontario and learn how you can find the best rate for your next home purchase in the province. In this section, we’ll discuss:
- Types of mortgages and lenders in Ontario.
- How mortgage rates in Ontario are determined.
- How lenders decide your mortgage rate.
- How to compare mortgage rates from Ontario lenders.
- How to qualify for a lower mortgage rate in Ontario.
- Factors that affect mortgage affordability.
Types of mortgages and lenders in Ontario
With Ontario being Canada’s most populated province, it’s home to a wide variety of lenders that offer mortgages. You can apply for mortgages at:
- Canada’s Big 6 Banks: RBC, TD, BMO, Scotiabank, National Bank and CIBC.
- Credit unions, including Meridian, DUCA and Northern Credit Union.
- Alternative lenders like MCAP and First National.
- Private lenders.
When applying for a mortgage in Ontario, you’ll have access to several types of home loans, including:
- Short-term mortgages of two years or less.
- Long-term mortgages, including the popular five-year fixed-rate mortgage.
- Variable rate mortgages, where your interest rate can rise and fall during your term.
- Fixed-rate mortgages, where your interest rate doesn’t change no matter what happens with rates overall.
- Open mortgages, which allow you to make more prepayments and pay off your mortgage faster.
- Closed mortgages, which don’t allow as much prepayment activity.
- High-ratio mortgages, which involve borrowing more than 80% of a home’s price. These are also known as insured mortgages because they require buyers to purchase mortgage default insurance.
- Uninsured mortgages, which don’t require mortgage default insurance because a buyer’s down payment was 20% or more.
Reverse mortgages are also available in Ontario, but only if you’re at least 55 years old and own your primary residence.
How are Ontario mortgage rates determined?
The mortgage rate you’re ultimately offered will be based on two factors: the overall health of the Canadian economy and your own personal financial situation.
Economic indicators include employment, inflation and GDP growth. They work their way into mortgage rates in two ways.
The Bank of Canada’s overnight rate
The Bank of Canada’s overnight rate is the interest rate financial institutions charge one another to borrow money. The BoC increases or decreases its rate based on market conditions, primarily the country’s rate of inflation.
If the economy is booming and inflation is rising too quickly, the BoC will try to curb it by increasing the overnight rate, as higher interest rates tend to have a calming effect on the economy. (People borrow and spend less.) If the economy is slowing and inflation is not a concern, the BoC will lower its benchmark rates to stimulate economic activity.
When the overnight rate rises, it’s more costly for financial institutions to borrow money. To recoup their losses, banks pass on this expense to their customers by raising their prime lending rate. This is of particular concern to variable mortgage rate holders. Variable mortgage rates are tied to a financial institution’s prime rate, so when a bank raises its prime rate, clients with a variable mortgage will experience an increase in their mortgage rate.
The government bond market
Financial institutions invest in government bonds to create a reliable profit flow, particularly five-year Government of Canada bonds. The bonds are issued at a set price, but their value fluctuates when they’re traded on the open market. As bond prices rise and fall, their yields do, too.
Canadian lenders’ fixed mortgage rates follow those yields quite closely. If bond yields increase (which happens when bond prices fall), fixed rates won’t be far behind, and vice versa. Historically, five-year fixed rates have usually been around 150 basis points higher than the five-year bond yield.
How Ontario lenders decide your mortgage rate
Economics provide a baseline for mortgage rates, but the actual rate a lender offers you will depend on your finances and how creditworthy they make you.
Credit score and income
Your credit score is a number between 300 and 900, as calculated by the two credit bureaus in Canada: Equifax and TransUnion. The higher your score, the more creditworthy you are in the eyes of lenders.
Every Ontario mortgage lender has different requirements when approving applications, but most lenders will want you to have a minimum credit score around 660.
Generally, if your credit score is good to excellent (660 or above) you’ll have a chance to qualify for low mortgage rates in Ontario. It is possible to get a mortgage with a low or “bad” credit score, but you may have to go with an alternative lender that will charge you a significantly higher interest rate.
Your income will also determine how much of a mortgage you’ll qualify for. The higher your income, the larger the amount you may be approved to borrow.
Debt service ratios
Ontario lenders will consider your debt service ratios to determine how much mortgage to approve, and at what rate to lend it.
Your gross debt service ratio, or GDS, which incorporates all housing expenses, shouldn’t exceed 39% of your gross annual income. In addition, your total debt service ratio, or TDS, which adds other debt such as student and consumer loans to your GDS, shouldn’t exceed 44% of your gross annual income.
The more debt you carry, the greater a risk you’ll seem to lenders. They could hedge against that risk by charging you a higher interest rate.
The type of interest you choose
The mortgage interest type you opt for — typically fixed or variable — generally has an effect on mortgage cost. Variable rates, because they risk rising during a mortgage term, have typically been lower than fixed rates, which offer predictability in exchange for higher interest charges.
But there have been times where variables have risen higher than fixed rates, such as late 2022/early 2023, when the Bank of Canada’s repeated increases to the overnight rate drove variables to levels they hadn’t hit since 2007.
How to compare mortgages from Ontario lenders
When evaluating mortgages in Ontario, you’ll want to look at the different lenders and what they’re offering to make sure you’re comparing apples to apples.
It’s crucial to compare annual percentage rates and not just interest rates. While the interest rate is a set percentage that a lender charges you to borrow money, APR includes the interest rate, fees and other closing costs that are set by the lender.
Ideally, lenders will publish APRs in addition to interest rates, but if they don’t, APR can be calculated by hand:
- First, divide total fees by the total loan amount.
- Then, multiply the result by the number of days in the year.
- Next, divide that result by the total number of days in the loan’s term.
- Finally, multiply that result by 100 and add a % sign.
Looking at the APR will give you a more accurate idea of the true cost of your mortgage. Here’s an example:
- Lender A: Offers a 5-year mortgage with a 4% interest rate and 4.25% APR.
- Lender B: Offers a 5-year mortgage with a 4% interest rate and 4.175% APR.
If you compare the above mortgage offers based on interest rate alone, there’s no difference. But by also examining APR, you can see that Lender B is charging lower fees, meaning the second mortgage offer is actually the better deal.
Whether you’re applying for your first mortgage in Ontario or renewing your current loan, you should also compare the following:
- Type of mortgage. You’ll pay a premium for a fixed-rate mortgage, but your payments won’t change over your term. With variable-rate mortgages, you’ll typically get a lower interest rate, but it may change based on the Bank of Canada’s overnight lending rate. The changing rate means your payments can go up or down during your term.
- Length of term. Most mortgages have 5-year terms. Shorter terms may come with lower interest rates, whereas longer terms typically have higher rates.
- Amortization period. The amortization period is the length of time over which your loan interest is calculated. The longer your amortization period, the lower your monthly payments, but you’ll pay more interest overall.
- Prepayment options. Some mortgages allow you to make additional payments each year. This gives you the option to pay off your mortgage faster if you come into extra funds, such as a bonus from work. Mortgages that don’t have any prepayment options will usually have lower interest rates.
- Open or closed. With open mortgages, you can pay off the entire amount at any time. However, for this privilege, you’ll be charged a higher interest rate. Closed mortgages may have prepayment options, but they’ll come with restrictions.
- Prepayment penalties. When paying off your mortgage early, you’ll often be charged a fee if you exceed your prepayment limit. Some lenders use the interest rate differential, or IRD, which can work out to a large amount, whereas others charge a flat fee equal to 3 months’ interest on what you still owe. Make sure you understand the potential penalties before choosing a mortgage.
Why it’s important to compare mortgage rates before applying
A mortgage is the largest loan most people get in their lives. That’s why comparing the best mortgage rates in Ontario is essential before choosing a lender and applying for a home loan. Even a slight difference in rates can end up saving — or costing — you thousands or tens of thousands of dollars over the life of your mortgage.
Don’t assume a lender, even if it’s a major bank you’ve been dealing with for years, is making its first offer its best offer. Always be willing to pit one lender’s offer against another to get a better deal. And once you’ve decided on a lender, don’t be afraid to negotiate.
If doing multiple comparisons aren’t something you have the mental bandwidth for, or if negotiating with experienced lenders makes you uncomfortable, consider engaging a mortgage broker to do the work for you.
How to qualify for a lower mortgage rate in Ontario
The best way to qualify for low mortgage rates in Ontario is to be financially healthy and choose the mortgage option that’s best suited to your needs. Here are some tips:
- Save a down payment of at least 20%.
- Work to strengthen your credit score before applying.
- Pay down debt to reduce your GDS and TDS ratios before applying.
- Choose a mortgage with a shorter term, such as 5 years, rather than a longer-term option.
- Shop around to compare mortgage interest rates and loan terms from different lenders.
Is the lowest mortgage rate the best rate?
The best mortgage rate for you might not be the lowest rate available. If a mortgage product suits your overall financial situation and future goals, but comes with a higher interest rate, it might be worth paying slightly more in interest, especially if it allows you more flexibility to deal with changes in your life.
Let’s say you’re looking for a mortgage at a time when fixed rates are less expensive than variable rates. The rate on a five-year fixed-rate mortgage might be the cheaper option, but if you don’t think you’ll be staying in the home for the full term, you may have to break your mortgage and pay a hefty penalty. Opting for a variable-rate mortgage would cost you more in the short-term, but it might align better with your mid-term plans.
It’s generally a good idea to speak with your mortgage advisor about your mid- and long-term goals to find a mortgage that fits both your finances and your life.
Factors that affect mortgage affordability
How much house you can afford depends on much more than the mortgage rate you’re offered. These key factors determine how much your monthly mortgage payment will be.
Your down payment amount
While you can get a mortgage by making a minimum down payment, it’s generally a good idea to make as large a down payment as possible to decrease the size and cost of your mortgage.
Making a larger down payment means borrowing less and paying less in interest charges. If your down payment is worth at least 20% of a home’s sale price, you can also avoid paying for mortgage default insurance, which gets added to the mortgage amount and results in paying more interest.
Saving a larger down payment may also signal to lenders that you’re able to prioritize your finances. If that makes you seem like less of a credit risk, you may be offered a lower mortgage rate.
You can still be offered decent mortgage rates by making minimum down payments. Canada’s minimum down payment requirements are:
- For homes with a purchase price of $500,000 or less: 5%.
- For homes with a purchase price between $500,000 and $999,999: 5% for the first $500,000 and 10% for the amount above.
- For homes with a purchase price of $1 million or more: 20%.
Amortization period
The amortization period is the total amount of time it will take to pay off your mortgage. If you make a down payment of less than 20% of the home’s purchase price, you’ll have a high-ratio (or insured) mortgage, which means the longest amortization period you can get is 25 years. If you make a down payment of 20% or more, you have a low-ratio mortgage and you can get a mortgage amortization period of up to 30 years.
A longer amortization period means more payments, but each one will be smaller. However, you’ll pay more interest overall compared to a mortgage for the same amount with a shorter amortization period.
The mortgage stress test
While down payment amount and amortization length directly contribute to the size of your monthly mortgage payments, the mortgage stress test will play a role in determining how much mortgage you qualify for.
Anyone getting a home loan in Canada must pass the stress test to demonstrate that they’ll be able to afford their payments even if interest rates increase. For the stress test, the lender will calculate your GDS and TDS using a mortgage rate of either 5.25% or the rate you’ve been offered plus 2% — whichever is higher. Because it uses a higher rate for its calculations, the stress test could mean you qualify for a lower mortgage amount than you were expecting.
Use current Ontario mortgage rates to estimate your monthly payment
If you plan on applying for a new mortgage or renewing your current one in the near future, it’s essential to check the current mortgage rates in Ontario so you can plan accordingly.
Even a small difference in mortgage rates could greatly affect your budget, so once you’ve gotten a sense of where mortgage rates are and what kind of loan you’d be comfortable with, plug that information into an Ontario mortgage payment calculator to find out how much your next mortgage might cost you.
Frequently asked questions about Ontario mortgage rates
The Bank of Canada expects inflation to be around 3% by the middle of the year, so it’s possible that variable mortgage rates could decrease at some point after that — possibly by the end of 2023. If the Bank lowers its overnight rate then, variables will come down, too. Fixed mortgage rates could also decline if the economy remains uncertain and government bond yields trend downward.
As of April 27, 2023, multiple lenders in Ontario were offering fixed-rate mortgages for less than 4.5%. Most variable rates, however, were still well above 5.5%.
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