How to Choose a Mortgage Rate

Choosing the right mortgage rate isn’t just about picking the lowest number you see online. It’s about understanding your finances, your long-term goals, and how different mortgage types and terms can impact your life. Whether you’re a first-time buyer or renewing your mortgage, this guide will help you confidently navigate your options.

---

Step 1: Estimate What You Can Afford

Before comparing rates, you need to understand how much home you can realistically afford. This process, known as mortgage affordability, is based on your income, expenses, debt, and how much you’ve saved for a down payment.

---

Step 2: Know Your Down Payment Options

The size of your down payment affects everything from your monthly payment to whether or not you’ll need mortgage default insurance.

In Canada, the minimum down payment is:

• 5% for homes under $500,000
• 10% for the portion above $500,000 up to $999,999
• 20% for homes over $1 million

The more you can put down, the less you need to borrow—and the lower your long-term interest costs will be.

Step 3: Pick a Mortgage Term That Matches Your Plans

Do you plan to stay in your home long term? Are you comfortable with some interest rate risk? These answers will guide your choice between short-term, medium-term, or long-term mortgages.

Most Canadians choose a 5-year fixed rate, but that doesn’t mean it’s the right fit for you. If you expect to move soon or think rates may drop, a 1- or 3-year term might offer better flexibility.

Fixed Rate: Your rate stays the same throughout your term.

Variable Rate: Your rate fluctuates with your lender’s prime rate, but your monthly payments may remain fixed.

Step 4: Choose the Right Type of Mortgage

There are open and closed mortgages. Understanding the difference can save you thousands if you need to break your mortgage early or want to make extra payments.

• Open Mortgage: More flexibility, no penalties for early repayment, but higher interest rates.
• Closed Mortgage: Lower rates, limited prepayment options, penalties for breaking early.

Bonus Tip: Look for prepayment privileges that let you pay off more of your principal without fees. Common options include:

• Lump-sum payments
• Increasing your regular payment
• Accelerated bi-weekly payments

---

Step 5: Understand How Mortgage Rates Are Set

Lenders determine your mortgage rate based on several personal and market factors. These include:

• Credit score
• Loan amount
• Down payment size
• Debt-to-income ratio
• Mortgage type and term

Improving your credit score and saving a larger down payment are two of the most effective ways to qualify for lower rates.

---

Step 6: Shop the Market (Or Let Us Do It for You)

Don’t settle for the first offer you get. Every lender prices differently, and what works for one borrower may not be the best deal for you.

At nesto, we scan the market in seconds to bring you the lowest rate available—without the haggling. Our advisors aren’t paid on commission, so you get honest advice that’s in your best interest.

---

Final Thoughts: It’s About More Than Just the Rate

Yes, a low rate is important. But so is flexibility, fees, repayment terms, and your personal goals. Choosing a mortgage is one of the biggest financial decisions you’ll make—so it’s worth taking the time to get it right.