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There are many ways to determine how big a mortgage you can afford. However, there are some guidelines Canadian lenders use when evaluating your eligibility for a mortgage.

Your down payment: How much you are able to put down upfront will inevitably impact how big a mortgage you can afford. This is because there are minimum requirements for a down payment in Canada, depending on the cost of the home.

On a home that’s $500,000 or less, you’re required to put down at least 5% upfront. On a home that’s between $500,000 and $1 million, you’re required to put down 5% of the first $500,000, and 10% of the rest of the principal. On a $1 million home, you’re required to put down at least 20%.

Down payments that amount to less than 20% of a property’s value are called high ratio mortgages and homebuyers need to purchase insurance to guarantee their mortgage. The price of the insurance premium is added to the monthly mortgage payment. Down payments that are at least 20% or more are called conventional mortgages and not require insurance.

Having a down payment that exceeds 20% will help you pay off your loan sooner and save you money in the long run. However, interest rates on high-ratio mortgages tend to be lower than the rates on conventional mortgages. That’s because the added insurance reduces the risk of the bank losing its investment.

Gross Debt Service Ratio: Your GDS ratio refers to the amount of your monthly income you’ll spend on housing costs. The Financial Consumer Agency of Canada uses a standard GDS ratio of 39% as a guideline, though every lender will be a little different. The lower your GDS ratio, the larger the mortgage you may be approved for.

Total Debt Service Ratio: Your TDS ratio refers to the total portion of your income that goes to paying debts and obligations each month. The Canadian Mortgage and Housing Corporation advises maintaining a TDS ratio of less than 42%. Much like your GDS ratio, the lower your TDS ratio, the larger the mortgage you may be approved for.

The answer will be different for everyone. It comes down to your personal financial picture and what you can easily carry after you’ve factored in other costs like property taxes, fees, and home insurance.

The surest way to secure the best mortgage rate from lenders in your area is to compare the market. Most lenders won’t offer you their best rates upfront, which can mean hours on the phone negotiating your contract. At LowestRates.ca, we aggregate the best rates from banks and brokers across the country and let them compete for your business. Get started by beginning a form with us.

Canada is a large country and so are its housing markets. If you’re trying to estimate what your monthly costs will be as a homeowner, we recommend not seeking out the average national mortgage rate. See what’s available in your province instead.

There are generally two types of mortgage rates you can select from. The first and more common option among Canadians is the fixed mortgage rate, which is set at the beginning of the mortgage term and can’t be changed until the term ends and the contract is renewed. The second option is a variable mortgage rate, which fluctuates according to market conditions.

Open mortgages can be paid off at any time without penalty, while closed mortgages impose steep penalties if you pay your loan off before the end of your term. Closed mortgages tend to have lower interest rates than open mortgages.

In Canada, there are a number of different ways to structure a mortgage.

Mortgages can vary depending on the term length, rate type and whether the mortgage is open or closed. Regardless of whether you have a fixed-closed, fixed-open, variable-closed or variable-open mortgage, term lengths can range from anywhere between one year and 10 years. The most common term length in Canada is five years.

Fixed-closed mortgage: A fixed-closed mortgage is a mortgage contract where the rate is fixed and the homeowners are not allowed to pay off their mortgage loan early without incurring a penalty.

Fixed-open mortgage: A fixed-open mortgage is a contract where the rate is fixed, but the homeowners are allowed to pay off their mortgage early without incurring a fee.

Variable-closed mortgage: A variable closed mortgage refers to a mortgage contract where the homeowners have a variable mortgage rate but can’t pay off their mortgage early without incurring a prepayment penalty. The interest rate with this type of mortgage rate will fluctuate depending on market conditions.

Variable-open mortgage: Lastly, a variable open mortgage allows homeowners to pay off their mortgage early without incurring a prepayment penalty. However, the amount that goes toward principal and interest from their monthly payment will fluctuate with market conditions.

Securing a great mortgage rate is just the first of many things you need to consider. We’re pretty sure you knew this, but homeownership doesn’t come cheap. Here are some of the other things you’ll need to budget for as a prospective homeowner.

Land transfer fees: In every province except Alberta and Saskatchewan, you have to pay a land transfer tax once you close the sale on your new home. The exact calculation varies depending on which province you live in, but it’s a cost you’ll need to consider come closing time.

Property taxes: A property tax is an annual charge depending on where you live. If you live inside a municipality, you’ll be required to pay a municipal property tax. If you live outside a town or city, you’ll have to pay a provincial property tax. Property taxes can either be rolled into your mortgage or paid in installments depending on the lender you’re working with.

Home insurance: While home insurance isn’t a legal requirement in Canada, you’ll be hard-pressed to find a lender to offer you a mortgage contract without it. Home insurance provides compensation in case your home is damaged by unexpected events, such as flooding or fire.

Land transfer taxes: These are additional taxes that are calculated as a percentage of the purchase price of the home. Land transfer taxes vary by province, though some municipalities charge an additional land transfer tax. Toronto, for example.

Renovations: Here’s one that could actually save you money, if done right. If you choose to renovate your home for accessibility reasons, you may be eligible for the Home Accessibility Credit (HATC), a federal tax credit. Some provinces also have their own accessibility credits. If you’re not careful — if you wind up with a flaky contractor or undertake a DIY project that you don't have the skill to complete — you could wind up costing yourself more money in the long run.

And one more thing: Check out our First Time Homebuyers Guide, which will take you through all the extra costs you will likely incur when purchasing a home — and more.

The homebuyers guide walks you through the steps of buying a home from beginning to end, starting with the mortgage and ending with closing costs and potential renovations.

Our guide is updated annually and includes information about Canada’s current mortgage market.

Mortgage term: A mortgage term refers to the length of time your mortgage contract is in effect before it is eligible for renewal. Mortgage terms in Canada can range anywhere from one to 10 years, but the most common mortgage term is five years.

Amortization period: The amortization period is the amount of time it will take you to pay off your entire mortgage. In Canada, the maximum amortization period is 35 years. But, if your down payment was less than 20% and you were required to purchase mortgage insurance from the Canadian Mortgage Housing Corporation, then your maximum amortization period is 25 years.

The short answer is yes. You can be pre-approved for a mortgage when a lender looks at your finances and informs you of the amount they will lend you and what interest rate they’re willing to offer you. Getting pre-approved for a mortgage can accelerate the process of moving into your new home when you find it. This is because if you’re pre-approved, the seller might choose your bid over another offer.

You’ll want to shop around for the best pre-approval rate you can find. While this can be a challenging and trying process, comparison sites like LowestRates.ca can make it a whole lot easier. Fill out our form to see what brokers are willing to offer you, and a broker will be in touch with you shortly to secure the rate you select on the site.

Payment flexibility needs to be negotiated with your lender at the outset. While some lenders will allow you to change the frequency and amount of your mortgage payments, others will charge fees for these adjustments.

This is why it’s important to think about prepayment privileges when you’re negotiating your mortgage contract. Otherwise, you might find yourself faced with additional fees if you’d like to make these changes down the line.

In addition, you’ll also likely be charged a fee if you choose to break your mortgage. This may happen if you choose to break your mortgage and renew your contract at a lower rate, or if you move before your mortgage has been paid. You can avoid paying a prepayment penalty by looking into securing portability as a feature of your mortgage contract early on.

Each mortgage lender sets rates based on its own relationship to the prime lending rate. But what’s the prime lending rate?

The prime lending rate is influenced by the Bank of Canada’s interest rate, which currently sits at 5.04%. Each bank has its own prime lending rate. The prime rate currently sits at 2.95%. Your lender will give you an annual interest rate on your mortgage that’s based on the prime rate. When the Bank of Canada raises its overnight rate, it gets more expensive for Canadian banks to borrow money. In response, they raise their own prime rates to cover the additional expense.

Other kinds of loans that are affected by the prime rate include car loans, lines of credit and some credit cards.

When you agree to a fixed-rate mortgage, you’ll select a rate based on what lenders are offering at the time and you’ll agree to pay that rate for the duration of your mortgage term. A variable rate, on the other hand, is usually determined by adding or subtracting a certain percentage from the prime lending rate. Each lender will determine this percentage on their own. When the prime lending rate goes up or down, the interest rate on a variable mortgage will follow, though the monthly payments will remain the same.  

There several different places Canadians can turn to get a mortgage. First, it’s important to identify the difference between a mortgage lender and a mortgage broker.

A mortgage lender lends money to prospective homebuyers directly. They can include a wide range of companies, including banks, trust companies, loan companies, credit unions, caisses populaires and mortgage companies.

A mortgage broker, on the other hand, will not lend money directly to you. Mortgage brokers arrange your transaction by seeking out a lender for you.

While some lenders will only work directly with prospective homeowners, other mortgage products are only offered through mortgage brokers. Since mortgage brokers have access to several lenders at once, they might be able to provide you with a broader range of prospective offers.

LowestRates.ca compares banks, brokers and other lenders all at the same time so you don’t have to go through the trouble. And ultimately, we get you the best mortgage rate from one of our trusted partners. Fill out a form to get started.

Given how hot Canada's housing market is, we can’t overemphasize the importance of mortgage rate comparison.