How to get the best mortgage rates in Canada – seven tips

  ​Updated: August 28, 2024

It is a dream for many in Canada to buy real estate properties. For most, they would at least want to call a house of their own. This is where home loans or mortgages come in. These types of loans are specifically designed for borrowers who are aspiring to become property owners.

However, it might be nerve-racking from the start especially if you are a first-time home buyer. You would need to do a lot of research about home loans and how they work. It might also be helpful if you seek advice from experts and read tips from reliable sources such as Canadian Mortgage Professional.

In this article, we will provide you with vital mortgage tips for securing a home loan in Canada. To our usual pool of readers, this is another one of our client-education pieces that you can share with any prospective client. This can greatly benefit them as we will also discuss some tips on choosing the right mortgage and how to get the lowest mortgage rate in the country.

Mortgage tips for securing a home loan in Canada

When you buy property, you must consider not only the amount borrowed, but also the interest rate. What appears to save you money in the present moment might end up costing you tens of thousands of dollars over the longer term.

As such, it is critical that you look for a mortgage deal with the most affordable interest rate that you can find. This is our first mortgage tip. Here are seven others that will help you secure your dream home:

1. check your credit score
2. shop around and compare rates
3. consider your present length of employment
4. save money and add to your savings account
5. put down at least 20% of the home’s cost
6. decrease your debt-service ratio
7. increase your income stability

Let us explore these mortgage tips further below:

1. Check your credit score

If you want to get the best mortgage deal in Canada, one good mortgage tip is to check your credit score. If you can convince a bank or a mortgage lender that you are a low risk, you have a bigger chance of getting a low rate.

By checking your credit score, you can take steps to raise it like repaying certain debts to achieve a lower debt-to-income ratio. Remember, banks and mortgage lenders are only interested in borrowers who can repay mortgages. It is also worth noting that a lender will feel comfortable enough to give you a better deal if you have a high credit score. For instance, a credit score hovering around 700-750.

While improving your credit score can be a lengthy process, you can do it by:

• keeping outstanding balances on credit cards on the lower side
• making larger payments on your outstanding credit card bills
• paying off any collections that are on your credit report
• ensuring all your bills are up to date

Want to know more about credit scores and how they affect your chances of securing a good mortgage deal? Read this article on what’s the right credit score to buy a house in Canada.

2. Shop around and compare rates

Another mortgage tip is not to take the first loan from the first bank or mortgage company that offers you a mortgage deal. Every application counts as a hard pull on your credit score. This is why it is important that you do not make multiple applications. This is where it would benefit you to ask an online broker or a mortgage broker, because they can shop around for you.

When shopping around, it is also a good thing to keep in mind that varying loan types offer varying interest rates. For instance, fixed-rate loans have higher rates than variable-rate mortgages. Since you will be responsible for your mortgage interest rate for years, it is important to make a choice that will save you the most amount possible during that period.

To help you shop around for the best mortgage deals and compare lenders’ interest rate offerings, you might want to hire a mortgage broker. These mortgage professionals can look into several banks and mortgage companies to find the best deals for you. They will base their search on your financial capacity and personal goals.

Not only that, but hiring a mortgage broker to do the work means that your credit history will only get pulled one time. Want to work with a broker? Check out our list of the best mortgage brokers in Canada. Take your pick from among 75 of the top names in the mortgage industry.

Stil not convinced? read this article to find out if getting a mortgage broker first is better than going directly to a lender.

3. Consider your present length of employment

Having the same employer for two years or more is the best time to apply for a mortgage—and not before. Banks and mortgage lenders will treat you more favourably if you are employed by an organization or company.

Lenders tend to consider you as low risk if you are employed rather than if you are a freelancer or self-employed. For this reason, if it is your spouse who is employed by a company, it is best to apply for a mortgage in their name. You will likely receive a better deal if the mortgage is taken out in your spouse’s name and not yours.

4. Save money and add to your savings account

To make sure you have enough money saved up to pay your mortgage in the event you lose your job, lenders will look at your savings account. To make sure you are less of a risk, lenders prefer seeing multiple months' worth of mortgage payments saved in your bank account. It will also signal to lenders that you are responsible financially. It is a good reason to save for up to four months’ worth of mortgage payments—and ensure that you get a good mortgage rate.

Here’s a bonus mortgage tip: upgrade your bank account to save more funds. Choosing a high-interest savings account instead of a regular savings or chequing account can be beneficial in saving up for mortgage. You can even double your savings faster with this type of account. Learn more about high-interest savings accounts in Canada by watching this clip:

5. Put down at least 20% of the home’s cost

This mortgage tip is critical since the amount that you will pay as down payment could ultimately increase or decrease your total cost. Most down payment percentages are in the area of 5% for homes worth $500,000 or less. But while mortgages do exist that require a smaller down payment, you can lower your interest rate if you put down at least 20% of the price of the property.

If you are unable to shell out 20% of the property’s cost, your interest rate could be higher. You will also be on the hook for mortgage default insurance. Still, you can get a reasonable interest rate with lower down payment if you get the CMHC mortgage loan insurance.

6. Decrease your debt-service ratio

Your debt-service ratio is the percentage of your gross income each month that you use to repay your debts. When you borrow money, lenders use your debt-service ratio to evaluate the risk you carry. For this reason, you should keep your Gross Debt Service (GDS) under 39%. Your GDS is the percentage of your housing costs which are covered by your monthly household income.

As for your Total Debt Service (TDS), you should keep it below 44%. Your TDS is the percentage of your housing costs plus any other debts which are covered by your monthly household income. You can calculate your GDS and TDS via CMHC’s debt service calculator.

If you want to decrease your debt-service ratio you should make higher payments on your debuts, increase your income, or reduce debt by buying things you know you have the cash to afford. Each of these signals to lenders that you are a lower risk.

7. Increase your income stability

Stabilizing your earnings is another mortgage tip that can help you secure a home loan. Mortgage companies will see that you are less likely to default on your mortgage if you have increased income stability.

To improve your income stability, you can give yourself an assessment of how much you spend each month versus how much money you earn. By doing this, you will be able to see various ways in which you might earn more and stabilize your income.

Here are some ways to increase your income stability and make you more attractive to banks and mortgage lenders:

• requesting more hours at your current job
• seeking out freelance or part-time work
• cutting out needless spending

Want to learn bonus mortgage tips? Check out this video where a financial planner explains three hidden mortgage tips and how to prepare for home purchase:

Mortgage tips for choosing the right mortgage type

If you want to know which type of mortgage is right for you, you should first know the different types of mortgages in Canada. These are:

• open mortgages
• closed mortgages
• portable mortgages
• assumable mortgages

Here are three mortgage tips in choosing the right mortgage type for you:

• reflect on your plans and assess your financial means
• understand the different mortgage types
• consider the pros and cons of each loan type

You can learn more about the types of mortgages in Canada that you can choose from in this article.

How to get the lowest mortgage rate in Canada

To get the lowest mortgage rates in Canada, you can ask your mortgage broker to find the best home loan based on your monetary capacity. If you follow the mortgage tips above, it can help you get a more affordable rate.

Applying these mortgage tips in your homeownership journey

As much as these mortgage tips can help you secure a home loan, the choice to apply them is still up to you. There are also other factors to consider such as your short-term and long-term plans. Overall, if you apply these tips and make the right decisions, you are but a few steps away from finally purchasing your dream home.

Did you find these mortgage tips helpful? Let us know in the comments section below