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Best Mortgage Rates Ontario in 2021
Ontario Mortgage Rates - Historical Trends
Mortgage rates in Canada and, more specifically, mortgage rates in Ontario have dropped dramatically since the beginning of Covid-19. This change in mortgage rates has made an Ontario mortgage much more affordable. One year ago, rates could be as high as 4% at a bank and 3% at a credit union. Now they are half of that, with an offer under 1% at one point in the last six months. To get the lowest rate, now would be the time to get a mortgage. The mortgage market and rate type may change, but mortgage rates are lower than they have been. The current 3 year fixed rates are the best Ontario mortgage rates will get for a long time. The below chart shows how mortgage rates have changed over the years.
| Year | 1Y | 3Y | 5Y | 5Y Variable |
|---|---|---|---|---|
| 1980 | 13.75% | 14.25% | 14.50% | 13.45% |
| 1985 | 10.00% | 11.25% | 11.75% | 10.20% |
| 1990 | 13.25% | 13.25% | 13.25% | 13.95% |
| 1995 | 8.13% | 8.63% | 8.95% | 7.95% |
| 2000 | 7.90% | 8.13% | 8.30% | 7.20% |
| 2005 | 4.90% | 5.60% | 6.05% | 3.95% |
| 2010 | 3.55% | 4.15% | 5.42% | 2.2% |
| 2015 | 2.89% | 3.39% | 4.64% | 2.55% |
| 2020 | 3.19% | 3.89% | 4.94% | 2.15% |
What is the best mortgage rate in Ontario?
Ontario’s housing market has exploded over the last few months. Generally, a smaller lender or credit union such as Meridian Credit Union or Alterna Savings will have some of the lowest mortgage rates. The most important thing to compare mortgage rates is to make sure you are comparing the same type and what the mortgage broker can offer. They will generally get you the best rates. Brokers compare multiple banks for the best rates and will provide you with the best deal based on what kind of terms or rates you want. A variable rate mortgage is better than a fixed-rate mortgage in terms of a lower rate, but this also changes consistently. Interest rates vary on a minute-by-minute basis, but in Ontario, the housing market makes interest rates particularly volatile. This can lead to mortgage brokers pushing the banks to fight with each other to get you the best rate as each one offers different percentages at any time.
What factors affect the mortgage rate I get?
In Ontario, there are multiple different places to get a mortgage, and with that, there are many different mortgage rates. Current mortgage rates are based on different things. Variable mortgage rates are based on the lender’s prime rate, with an adjustment. Variable rates can be either above or below the prime rate. This fluctuates based on the conditions of your variable mortgage.
This means your rate will either increase or decrease over your term. As rates get updated over your term, you can end up paying a slightly lower rate. If the prime rate increases over your term, your rate would increase. This can be changed during your term generally if the big banks or credit union (such as Alterna Savings) have a program to switch you to something called a fixed term rate.
Fixed Rates
Fixed-rate mortgages are based on long-term factors such as bond rates. They are a type of mortgage that will stay the same over a certain period. They come in many different increments. 1 year fixed, 3 year, 5 year are all terms selected for a fixed-rate mortgage. So these terms will lock in a rate for that amount of time. Most people base their fixed term on the best rate. A 5 year fixed rate will be higher than a 3 year fixed rate if the bank expects that the rates will drop over the next 5 years instead of the next 3 years. The mortgage rate is essential when deciding to purchase a home.
Credit Score
Your credit score will also affect your rate. The better your credit score, the better the rate you can get. The rate is based on the amount of risk that the bank will take on to offer you a mortgage loan. If you have a good credit score, this will provide you with a better rate as you are less of a risk to the bank. If your credit score is not as good, they could increase it because your history looks riskier to the lender.
Down Payment
The amount you put down for a down payment for purchase can also affect your rate, as this can make your mortgage high ratio. High ratio mortgages offer lower rates than an uninsured mortgage as the lender is protected via the required default insurance. The banks will change your mortgage rates also based on how much you borrow. The larger the loan, generally, the more significant the risk. However, if you go for a larger mortgage that is default insured, you will generally find the best rates.
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Land Transfer Tax in Ontario
In Ontario, as well as Toronto, there are taxes for when land changes hands. This is called the land transfer tax. It is a fee paid by the buyer to the government based on the land’s purchase price. This tax applies to all land purchases in Ontario, whether they have a house on them or not. It is designed as a tax for the government to track and manage all the properties being sold and bought in the province. It has not changed since 2017, even though property prices continue to rise, but this can always change.
Ontario land transfer tax is one of the associated costs of purchasing a property in Ontario. The buyer is responsible for the cost, and the tax is based on a scaled fee that is solely based on the property’s purchase price to the government. This fee is based as follows:
| Purchase Price | Land Transfer Tax |
|---|---|
| On the first $55,000 | 0.5% |
| Between $55,000.01 to $250,000 | 1.0% |
| Between $250,000.01 to $400,000 | 1.5% |
| Between $400,000.01 to $2,000,000 | 2.0% |
| Anything over $2,000,000 | 2.5% |
This cost applies to any purchase in Ontario and can be included as part of your closing costs but cannot be included in your mortgage. You must have this money on hand, and in your account for the purchase, in addition to your down payment.
Land Transfer Tax in Toronto
Further to the Ontario land transfer tax, there is also a Toronto land transfer tax if you purchase a property in the Greater Toronto Area. Like the Ontario purchase, the Toronto land transfer tax would also be a sliding scale of costs that go directly to Toronto’s municipality. It is listed as follows:
| Purchase Price | Land Transfer Tax |
|---|---|
| On the first $55,000 | 0.5% |
| Between $55,000.01 to $250,000 | 1.0% |
| Between $250,000.01 to $400,000 | 1.5% |
| Between $400,000.01 to $2,000,000 | 2.0% |
| Anything over $2,000,000 | 2.5% |
These costs would be on top of the current Ontario land transfer tax you would pay. For example, for a $500,000 house in Toronto, this would cost you a total of $12,950 in transfer taxes for purchasing a property in the GTA. There are also credits available for first-time home buyers looking to buy a property, as long as certain requirements are met.
Ontario First Time Home Buyers Programs
If you choose to use this program, you can also apply for rebate credits from the government for these costs. This program offers rebates on Ontario mortgages up to $4,000. This would be equivalent to not paying land transfer tax on the purchase up to $368,000. These rebates can be applied for in your tax return for the year you purchase the home. To qualify for these programs, you have to have an Ontario mortgage, move in within the first year to live, and it would have to be registered under your name. As long as these conditions are met, you would be able to claim the tax credit and get up to $4,000 back from the government.
Further to this, you can utilize your RRSP for your first home. For example: if someone was purchasing their first home, they can withdraw or borrow $35,000 from their RRSP without withholding tax and take up to 15 years to pay this back. This program can help individuals pay for the land transfer taxes, part of the down payment, or any other associated home purchase costs.
Ontario Non-Resident Speculation Tax
The non-resident speculation tax is a crucial part of keeping home prices reasonable in Ontario. This tax is an additional tax for foreign purchasers of a property in Ontario. This tax is for people who are not Permanent Residents or Canada citizens who wish to purchase a property. This could apply to temporary residents in Canada or residents of another country who want to buy a property and a foreign corporation that wishes to purchase in Canada. This tax adds 15% based on the property’s purchase price and cannot be waived. This would not apply to a person who is a citizen or Permanent Resident of Canada but would only apply to those from a foreign country looking to purchase in Canada.
FAQs
We have included some frequently asked questions below, which should be helpful when comparing rates:
How much can I save by comparing mortgage rates in Ontario?
Using a mortgage broker for the best rate can be a precious resource. Credit unions, alternative lenders, variable rates, fixed rates, open or closed term can all be very overwhelming between the banks, credit unions, and alternative lenders. To break it down a bit further, speaking to a mortgage broker would be beneficial. They sort through the noise to get you the best rate based on the term you want. Whether it is a 5 year fixed, 5 year variable, 3 year fixed, 3 year variable, 1 year fixed, your interest rate will be different. The difference for the mortgage term you choose could be tens of thousands of dollars per year. A fixed mortgage can vary from credit union to bank by as much as a per cent. Mortgage brokers will look at all the terms and get the best rate for you.
A default insured mortgage on a 25 year amortization will get the best fixed rates. This is because there is less risk to the lender. These mortgages have had a default insurance company insure the mortgage to protect the bank from default over your amortization period. The borrower pays default insurance. These mortgages mean less risk to the lender and a decrease in the rate for the borrower.
What is the difference between Fixed and Variable rate mortgages?
Variable rate mortgages can change on a month by month basis. The Bank of Canada will lend to the banks at the “Bank of Canada Overnight rate”. From there, the banks will take a cut and offer the “prime rate”. This can change based on the changes in the Bank of Canada rate. Your variable rate mortgage is based on that number, plus or minus. Mortgage brokers can get the best rate by adjusting the plus-minus. If the economists expect the prime to increase, they will offer prime – x. If they expect it to decrease, they will provide prime + x. This way, the rate offered is still above where they make money. As the prime rate changes, the mortgage payments will increase or decrease based on the increase or decrease in interest. A broker will look at all the variable offers on the current mortgage amount and get the best adjustment. The government has expected the rate to stay low until at least 2023, but as the economy recovers, this could increase. At that time, you can move your variable rate into a fixed rate
Fixed mortgage rates are a set percentage of interest for a specific term. The whole life of the mortgage or amortization can be 25 or 30 years. The mortgage term of a fixed rate could be a 5 year term. This means you get a certain percentage for 5 years. This rate does not change over the whole 5 years, no matter what happens in the market. This is the safest option for the borrower, as there is no risk of increasing their current rate during their term. Fixed rate terms go from 6 months to 10 years.
Which is better: 5 year fixed or 5-year variable?
This question does not have a solid answer, as rates change daily. Based on the big banks’ rates, the last updated better rate is a variable. There is more risk with a variable rate as this can change, and you will end up paying more interest, but it is currently lower. If you are looking for less risk, a fixed mortgage may be better, even though it is slightly higher. Fixed mortgages offer stability and security, while variable rate mortgages offer the opportunity for a better rate. The good thing about a 25 year mortgage is you can try both if you want, as you can renew into the other after each term.
What are prepayment options?
Prepayment options allow you to prepay your mortgage directly, without a penalty. When you select a mortgage term, the bank will enable you to pay a certain amount into the loan amount without a penalty. This option is called a prepayment option. The prepayment option is based on your mortgage amount. If you were to pay off your mortgage in totality, there would be a penalty. Prepayment options offer the ability to pay part of it off without that penalty, saving you money and eventually decreasing your mortgage payment. This option will bring the length of time of a 25 year mortgage on a 5 year term to less than 20. When interest rates are low, it is a great time to prepay the mortgage, as this will avoid high borrowing costs when interest rates rise. A mortgage is a long term loan, but making prepayments can shorten the loan life and allow borrowers to get ahead. There is a conversation around good debt and bad debt, but it is always better to pay less interest than to pay more interest, and prepayment options do that. Whether it is 10% per year of the amount borrowed, 20%, or even 25% per year of the amount borrowed, it is essential to confirm the exact amount you can prepay without a penalty.
Should I get an open or closed mortgage in Ontario?
Mortgage rates will be lower on a closed term because if you pay off the mortgage, there would be a penalty. The open term is a type of mortgage with a higher rate that tends to be for people who are looking to move their mortgage (to somewhere like Alterna Savings) or pay it off. This way, the bank cannot charge a high penalty. Closed terms come with a penalty which can be calculated in many different ways. One of those ways is 3 months interest. This penalty type will take the principal amount you owe, multiply it by your annual interest rate, and then divide it by 4. This calculation will give you the total amount of prepayment penalty. The lender will also have a variable way to determine the prepayment penalty, which can sometimes result in a higher penalty than what is currently being charged at 3 months. It is imperative to review all the options for an open or closed term before deciding which way to proceed.
What is a mortgage rate hold?
A mortgage rate hold is when you are looking to get a mortgage at a particular place, they can hold the rate for you. If you apply for a mortgage at one time in the mortgage markets, they will hold the rate for a certain amount of time. At Alterna Savings, for example, they offer rate holds for 120 days after application. Once 120 days pass, this gets rates updated. As a specific example, if you were to apply for a mortgage in August, rates would be updated in January. Mortgage rates in Ontario fluctuate all the time. You can always get a lower interest rate if it decreases, but holds are crucial to help protect from a rise in interest rates, especially when planning for five years in the future. Different lenders offer different rate holds, so make sure that you have already booked your hold or get another one if you hear rumours of rates increasing. Rate holds are vital to making sure you are set up and good to go when purchasing your home.
Should I use a mortgage broker in Ontario?
Mortgage brokers are beneficial when looking for rates between different lenders, banks and credit unions. If you know the term you are looking for, a mortgage broker will look between all the other lenders to get the lower mortgage rate for you. They will also put the application to multiple lenders to see who qualifies you for the most. As well, if you are finding you are being priced out of a specific area, your mortgage broker can help with potentially increasing your maximum purchase price and the total amount you are qualified for in terms of your mortgage loan.
Mortgage brokers want to make sure they can qualify you for the amount you are looking for as home prices continue to increase. If this happens, they can continue to offer more loans and get better rates. When looking at your situation, a mortgage broker will make sure that they are working on getting you the amount of money you are looking for at the best rate available. They can use special leveraging techniques to waive fees that come with your mortgage as well. They can waive appraisal fees and sometimes have an offer that will decrease your penalty if you switch to a different bank. Mortgage brokers can also switch between other banks to get you more funds through a refinance if you want to take equity or value from your already owned home. If you are denied renewing your term, a broker can look at another lender.