Mortgages In Canada

Mortgages make homeownership possible for Canadians. With structured financing and spread-out payments, mortgages can be tailored specifically to each type of borrower to make owning a home more accessible. That said, there are still criteria to meet. In this article, we’ll cover all aspects of mortgages in Canada, including loan requirements, loan options, and how to apply for a home loan. 

Key Points

• Mortgages come in fixed- and variable-rate options, various term lengths, and amortization periods.
• To qualify for a mortgage, your lender will assess your credit score, income, debt, and down payment.
• The cost of a mortgage depends on factors such as the interest rate, loan term length, and mortgage default insurance.
• If you have bad credit, you may qualify for a mortgage with a private or alternative lender.

What Is A Mortgage?

A mortgage is a secured loan that is used to cover the purchase price of a home. The property itself serves as collateral, which reduces the lender’s risk. If payments are not made, the lender can seize the home through power of sale or foreclosure. 

Mortgages in Canada typically come with fixed or variable interest rates. Some lenders also offer hybrid mortgages, which blend the features of fixed- and variable-rate mortgages, giving borrowers both rate stability and flexibility. Borrowers repay mortgages in regular installments, which include both the principal and interest, over a set period. 

Essential Mortgage Features At A Glance

Mortgages in Canada are characterized by the following features:

What Do You Need To Get A Mortgage In Canada?

As you would imagine, mortgage lenders don’t just hand out hundreds of thousands of dollars to just anyone. Instead, they require that applicants meet certain criteria before a loan is approved. Lenders will look at several aspects of your financial health before your application for a mortgage goes through, including the following: 

Credit Score

One of the more important components of your financial health in terms of securing a loan is your credit score. In Canada, credit scores range from 300 to 900. The higher your score, the better your chances of mortgage approval. 

That said, lenders generally accept a minimum credit score of 640, though a score that falls somewhere between 620 and 680 would be considered a minimum, depending on the lender. The minimum credit score also depends on whether you’re taking out an insured mortgage. In this case, the credit score can typically be lower, as low as 600.

Income

Your income will need to be adequate to cover the mortgage payments every month. In addition to all of your other bills that you’re responsible for paying, your lender will assess your income relative to all the debts you have to pay. 

Debt-To-Income Ratio

More specifically, lenders will look at your debt service ratio, which measures how much of your gross monthly income is dedicated to paying off debt. The lower this percentage, the better.

There are two numbers lenders will look at: 

• Gross Debt Service (GDS) Ratio: Your GDS is the percentage of your gross income used to pay for all housing costs, including mortgage payments, property taxes, and heating. Your GDS should not be any more than 39%.
• Total Debt Service (TDS) Ratio: Your TDS is the percentage of your gross income used to pay for all housing costs, plus all other debts, such as credit cards and other loans. Your TDS should not be any more than 44%.

If your debt load is already sky-high, it may be more difficult for you to be able to comfortably cover an additional debt payment in the form of a mortgage. In this case, you may need to take some time to reduce your debt before you apply for a mortgage.

Mortgage Stress Test

The mortgage stress test in Canada is a financial assessment that borrowers must undergo to ensure they’re able to afford their mortgage in the event that interest rates increase or their financial situation changes. This test is designed to help borrowers avoid excessive debt and reduce delinquent loans. Federally regulated lenders are required to ensure that borrowers undergo the mortgage stress test as part of the application process. 

To pass this stress test, borrowers must qualify at 5.25% or their loan contract rate plus 2%, whichever is higher. 

Learn more: The Canadian Mortgage Stress Test

Down Payment

To secure a mortgage, you’ll need to offer a down payment that goes towards the home’s purchase price. Depending on the loan amount you take out and the price of the home you’re buying, there are minimum down payment requirements involved. 

Mortgage Down Payment Rules In Canada

As already mentioned, you need to come up with a down payment in order to secure a mortgage, and 5% of the purchase price is typically the minimum amount required. But if you want to avoid mortgage default insurance (which protects the lender in case you default on your loan), you’ll need to come up with at least a 20% down payment. 

Anything less than a 20% down payment will automatically require the additional payment of mortgage default insurance. 

The amount that needs to be paid for this insurance policy is based on a percentage of the price of the home. Generally speaking, mortgage default insurance costs anywhere between 0.6% – 4.5% of the purchase price of the home and is typically rolled into mortgage payments. Even though it may be an added expense, it allows Canadians to enter the real estate market who might not otherwise be capable of doing so without it.

How To Apply For A Mortgage

To apply for a mortgage, follow these steps:

Step 1: Get Pre-Approved

Getting pre-approved for a mortgage before you formally apply can help you find out how much you can get approved for. That way, you can focus only on properties that suit your budget. Plus, mortgage pre-approval can also help show sellers that you’re a serious buyer, which can be particularly helpful in a competitive housing market.

Just keep in mind that pre-approvals have an expiry date of between 90 to 120 days. So once that date comes and goes, the pre-approval letter is no longer valid.

Step 2: Make An Offer

Armed with a pre-approval, you can more confidently make an offer on a home. Make sure you partner with a seasoned real estate agent to help you draft a solid offer that the seller will find attractive to minimize back-and-forth bartering and lead to a successful outcome.

Step 3: Finalize Your Mortgage

Once your offer is accepted, you’ll proceed with finalizing your mortgage deal. At this point, your lender will want to see your purchase agreement and may order an appraisal on the home to verify its value. 

Step 4: Close The Deal

Once everything checks out with the purchase agreement and loan contract, you can close on the transaction. You’ll need to ensure that you have the liquid funds needed to cover your down payment and closing costs. 

Learn more: How To Successfully Shop For A Mortgage

What Documents Do You Need To Apply For A Mortgage?

When applying for a mortgage in Canada, you’ll likely need to supply the lender with the following documents:

Personal Documents:

• Government-issued photo ID  
• Social Insurance Number (SIN)

Financial Documents:

• Letter of Employment
• Pay stubs 
• Tax returns
• T4/T4A tax forms
• Notice of Assessment (NoA)
• Bank account information

You can use this mortgage document checklist to see if you have all your documents in order.

Can You Get A Mortgage As A Newcomer? 

Yes, newcomers to Canada have a few options to help them get the financing they need to buy a home. For instance, Canada’s big banks offer mortgage programs designed for newcomers to Canada, though loan requirements may be stricter compared to home loans for citizens and permanent residents.

Note: Non-residents of Canada may have to wait to purchase a home in Canada due to the current Foreign Buyer Ban, which is currently in place until 2027.

Should You Apply For A Mortgage Through A Bank Or Mortgage Broker?

Whether you choose to work with a bank or a mortgage broker, there are benefits and drawbacks to both.

In general, it’s best to work with a mortgage broker if you’re looking for:

• No Stress Test: Mortgage brokers may help you find an alternative lender that is not federally regulated, and therefore may not require the mortgage stress test.
• Bad Credit Is Accepted: Mortgage brokers work with all sorts of lenders, including those that work with bad credit borrowers. 
• Faster Process: Working with a mortgage broker can help speed up the process, as they do all the comparison shopping with multiple lenders. This helps them quickly find the best loan options and rates. Plus, brokers handle all the paperwork and negotiations, which can help reduce delays.

Things To Consider When Getting A Mortgage

Several key considerations should be made before you apply for a mortgage:

Should You Get A Fixed Rate Mortgage Or A Variable Rate Mortgage?

When shopping for a mortgage, you have options when it comes to your commitment to a specific interest rate. 

You’ll have the option to choose between a fixed-rate or variable-rate mortgage. As the names suggest, a fixed-rate mortgage comes with an interest rate that does not change throughout the mortgage term. In contrast, a variable-rate mortgage comes with a rate that fluctuates at specific intervals throughout the term.

Learn more: Fixed vs. Variable Rate In 2025 | Which Should You Choose?

Payment Options

Mortgages have many variables to them, and payment frequency is one of them. But you have options as far as how frequently you’ll be paying out mortgage payments, including the following:

• Monthly
• Semi-monthly (twice a month)
• Bi-weekly (every two weeks)
• Accelerated bi-weekly
• Weekly (every week)
• Accelerated weekly

Learn more: How The Right Mortgage Payment Option Can Save You Money

Mortgage Prepayment Options

You may even want to consider paying off your mortgage early, but there are many factors to consider so make sure you speak with your mortgage expert first.

Mortgage Amortization Period

A mortgage amortization period is the total amount of time you have to pay off your loan in full. Typically, amortization periods range from 15 to 30 years.

You have the option to go with a short-term or long-term amortization period:

• Short Amortization Period: With a short-term amortization period, like 15 years, you’ll be able to pay off a loan amount sooner, which means you can be debt-free sooner. This also means you’ll save a great deal of money on interest paid. But that also means that your monthly mortgage payments will be higher to achieve this goal.
• Short Amortization Period: With a long-term amortization period, like 25 or 30 years, you’ll have the advantage of lower monthly mortgage payments, which can make the mortgage more affordable. But the downside is that you’ll be paying more in interest over the life of the loan, and you’ll be stuck with this debt for much longer.

Mortgage Term

In Canada, a mortgage term is the length of your contract with a lender. Mortgage terms can range from 6 months to 10 years, though 5 year terms are most common. When the term ends, you’ll need to either renew your mortgage or pay it off in full. 

Mortgage Portability

Mortgage portability involves moving your existing home loan from your current home to a new property without incurring penalty fees. That means the rate and term stay the same when porting your mortgage, which is a simpler and more affordable option compared to taking out a new mortgage for your new home.

Keep in mind, however, that you may need to re-qualify for a mortgage if your new home is more expensive than your outstanding mortgage amount. 

Bridge Loans

A bridge loan provides short-term financing between the sale of your current home and the closing on a new home. Essentially, these loans “bridge the gap” so you’re not left holding two mortgages if there is a time lapse between both closings. 

Loan terms for bridge loans typically range from 90 days to 1 year, with rates often higher than traditional mortgages. After the closing date on your current home, the equity from your new home may be used to repay the bridge loan.

How To Calculate How Much You Can Afford?

Before applying for a mortgage, consider crunching the numbers to see what you can afford, and if you can handle a mortgage at all. Fortunately, estimating your mortgage payments and determining your affordability is easy thanks to online calculators. 

For instance, Canada’s Big Banks – including TD, Scotiabank, RBC, CIBC, and BMO — offer mortgage affordability calculators that tell you how much home you can afford. Just plug in a few numbers, and these calculators will quickly tell you more about your mortgage affordability.

Learn more: Mortgage Affordability

What If You Can’t Afford A Mortgage? 

If you’re unable to afford a mortgage, there are options available to consider:

Rent-To-Own

One of the hurdles that many home buyer hopefuls have difficulty overcoming is the down payment. Rent to own can help alleviate this issue.

Rent-to-own is a home ownership option that allows Canadians to rent a home first and buy it later. Part of each monthly payment goes toward the eventual purchase of the home, helping to build equity. 

The purchase price is determined in advance, though you may choose not to buy the home once the contract term ends. However, if you decide not to buy, you may lose the equity you’ve built up in the home.

Learn more: Rent-To-Own In Canada

Down Payment Assistance Programs

Another way to overcome down payment issues is to seek out a down payment assistance program in your province. Check out some of the following programs available across Canada, depending on where you live:

Additional Reading

How To Get Pre-approved For A Mortgage

Do You Need An Escrow Account For Your Mortgage?

Applying For a Mortgage Outside of Your Home Country

Bottom Line

If you’re in the market to buy a home and need a mortgage to help you finance it, you’ll need a mortgage lender. You can submit a request on Loans Canada today and we’ll help connect you to a third-party licensed mortgage broker who can help you.

Mortgages In Canada FAQs

Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.