Question 1

How is a Canadian mortgage payment calculated?

Accepted Answer

Canadian mortgages use semi-annual compounding as required by the Bank Act. The nominal annual interest rate is compounded twice per year to determine the effective annual rate, which is then converted to a monthly (or other frequency) rate for payment calculations. This differs from US mortgages which use monthly compounding.

Question 2

What is the minimum down payment required in Canada?

Accepted Answer

The minimum down payment depends on the purchase price: 5% for homes under $500,000; 5% on the first $500,000 plus 10% on the portion between $500,000 and $999,999; and 20% for homes priced at $1,000,000 or more. Homes over $1 million are not eligible for CMHC-insured mortgages.

Question 3

What is the maximum amortization period in Canada?

Accepted Answer

For insured mortgages (down payment under 20%), the maximum amortization is 25 years. For uninsured mortgages (down payment of 20% or more), lenders may offer amortization periods up to 30 years, though 25 years remains most common.

Question 4

What is the mortgage stress test?

Accepted Answer

The federal mortgage stress test requires borrowers to qualify at the higher of 5.25% or their contract rate plus 2%. This applies to all federally regulated lenders (banks) for both insured and uninsured mortgages. The stress test ensures borrowers can handle potential rate increases.

Question 5

What is the difference between a fixed and variable rate mortgage?

Accepted Answer

A fixed-rate mortgage locks in your interest rate for the entire term (typically 1–5 years), providing payment certainty. A variable-rate mortgage fluctuates with the lender's prime rate, meaning your payment or amortization period may change. Variable rates have historically been lower but carry more risk.

Question 6

What is CMHC mortgage insurance?

Accepted Answer

CMHC (Canada Mortgage and Housing Corporation) mortgage insurance is required when your down payment is less than 20% of the purchase price. It protects the lender — not the borrower — in case of default. The premium ranges from 2.8% to 4.0% of the mortgage amount and is typically added to your mortgage balance.

Question 7

How much does CMHC insurance cost?

Accepted Answer

CMHC insurance premiums are: 4.00% for down payments of 5–9.99%, 3.10% for 10–14.99%, and 2.80% for 15–19.99%. The premium is added to your mortgage and amortized over the life of the loan. Provincial sales tax may apply in some provinces (Ontario, Quebec, Manitoba, Saskatchewan).

Question 8

Can I avoid CMHC insurance?

Accepted Answer

Yes — by making a down payment of 20% or more of the purchase price. You can also avoid it by purchasing a home priced at $1 million or more (as these are not eligible for insured mortgages regardless of down payment). Note that some lenders offer "conventional" mortgages with 20%+ down without requiring CMHC.

Question 9

What programs are available for first-time homebuyers in Canada?

Accepted Answer

Key programs include: First Home Savings Account (FHSA) — tax-free savings up to $40,000 lifetime ($8,000/year); RRSP Home Buyers' Plan — withdraw up to $35,000 per person ($70,000 per couple) tax-free; First-Time Home Buyer Incentive — shared equity with the government (5–10% of purchase price); and various provincial programs with additional rebates and incentives.

Question 10

What is the First Home Savings Account (FHSA)?

Accepted Answer

The FHSA (launched 2023) allows first-time buyers to save up to $8,000 per year (lifetime maximum $40,000) in a tax-free account. Contributions are tax-deductible (like an RRSP), and withdrawals for a qualifying home purchase are tax-free (like a TFSA). This makes it the most powerful savings vehicle for first-time buyers.

Question 11

What is the RRSP Home Buyers' Plan?

Accepted Answer

The RRSP Home Buyers' Plan allows first-time buyers to withdraw up to $35,000 from their RRSP ($70,000 per couple) tax-free for a home purchase. The funds must be repaid to the RRSP over 15 years, starting 2 years after the withdrawal. If not repaid, the annual repayment amount is added to your taxable income.

Question 12

How is property tax calculated in Canada?

Accepted Answer

Property tax is calculated by multiplying your property's assessed value (determined by the municipal assessment authority) by the applicable mill rate set by your municipality. For example, a $750,000 home in Toronto at 0.67% would pay approximately $5,025/year. Rates vary significantly by city and province.

Question 13

What is land transfer tax?

Accepted Answer

Land transfer tax (LTT) is a provincial tax paid when you purchase property. Most provinces charge it, with rates typically ranging from 0.5% to 3% of the purchase price on a graduated scale. Alberta and Saskatchewan have no provincial LTT. Toronto charges an additional municipal LTT on top of Ontario's provincial LTT. First-time buyers may qualify for rebates.

Question 14

What are typical closing costs in Canada?

Accepted Answer

Typical closing costs include: land transfer tax (varies by province), legal/notary fees ($1,000–$2,500), title insurance ($200–$500), home inspection ($400–$600), appraisal fee ($300–$500), property tax adjustments, and moving costs. Budget 1.5–4% of the purchase price for closing costs in addition to your down payment.

Question 15

What is the difference between mortgage term and amortization?

Accepted Answer

The amortization period is the total time to pay off your mortgage (typically 25 years). The mortgage term is the length of your current agreement with the lender (typically 1–5 years). At the end of each term, you renew your mortgage, potentially at a different rate. Most Canadians renew their mortgage multiple times before it's fully paid off.

Question 16

What happens at mortgage renewal?

Accepted Answer

When your mortgage term ends, you can renew with your current lender at new rates, or switch to a different lender for potentially better terms. You can also make lump-sum prepayments at renewal without penalty. Shopping around at renewal can save thousands — don't just accept your lender's posted renewal rate.

Question 17

What are prepayment privileges?

Accepted Answer

Most Canadian mortgages allow annual lump-sum prepayments of 10–20% of the original mortgage amount without penalty, plus the ability to increase regular payments by 10–20%. Using these privileges can significantly reduce your amortization period and total interest paid. Check your mortgage contract for specific prepayment terms.

Frequently Asked Questions

Mortgage Basics

CMHC & Mortgage Insurance

First-Time Buyers

Property Taxes & Costs

Mortgage Terms & Renewal

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