Start with the right yardstick
Headlines usually quote a single rate, often the lowest advertised five-year fixed. That is a poor test of your own offer because mortgage pricing depends on the product. Lenders price insured mortgages (less than 20% down, with mortgage default insurance) differently from uninsured ones, short fixed terms differently from five-year terms, and variable rates off their prime rate.
The fairest test is the lowest rate published today for the same mortgage: the same term, fixed or variable, the same insurance class and your province. That's the rate another lender is advertising this week, so it's the one you can actually put in front of your own lender.
A second, slower yardstick is what borrowers typically paid: the Bank of Canada's monthly series of effective interest rates charged on new mortgages by chartered banks. It splits new lending into insured and uninsured, variable and fixed, and three term buckets. Because these are rates borrowers actually received, they already reflect discounts below posted rates, but they arrive two to three months late.
- Fixed or variable — they follow different market rates.
- Term bucket — under 3 years, 3 to under 5, and 5 years and over.
- Insured or uninsured — insured mortgages are usually priced lower.
How the grader marks a mortgage offer
The fixed mortgage checker finds the lowest rate listed today for your term, insurance class and province, and grades your rate by the gap: A+ at or below it, A within 0.10 points, B within 0.25, C within 0.50, D within 0.85, F beyond that. The typical rate sits beside it on the report card, moved for bond-yield changes since the Bank of Canada's latest month and labelled as an estimate.
In the example below, an offer of 4.79% gets a mark of 67 out of 100 ("grade C"): it is 0.45% above a best published rate of 4.34%. On these numbers the gap is worth about $10,781 over the 5-year term. The full formula and every input are on the methodology page.
- Rate
- 4.79%
- Score
- 67
- Verdict
- grade C
- grade
- C
- Benchmark
- 4.34%
- typical
- 4.83%
- Gap
- 0.45%
- Direction
- above
- Cost vs benchmark
- $10,781
Turn the gap into dollars
A quarter of a point sounds small. On a large balance it is not. With $500,000 borrowed over 25 years, 4.64% instead of 4.39% raises the monthly payment by $69.54 and adds $5,987 of interest over a 5-year term. You also finish the term owing $1,815 more, which carries into your renewal.
Use the rate difference calculator to run your own balance, or the mortgage payment calculator to see the full term.
| At 4.64% | At 4.39% | |
|---|---|---|
| Monthly payment | $2,806.41 | $2,736.87 |
| Interest over 5 years | $108,378 | $102,391 |
| Balance after 5 years | $439,993 | $438,179 |
Posted rates are list prices
The Bank of Canada also publishes the major banks' weekly posted rates. Posted five-year rates normally sit well above what most borrowers are offered, so an offer that is "below posted" is not automatically a good one. Posted rates still matter: many lenders use them when they calculate an interest rate differential penalty.
If a lender's first quote is close to its posted rate, treat it as an opening position and ask for its discounted rate. The new mortgage script has wording you can use.
When a higher rate can be the better mortgage
Rate is the biggest single cost, but not the only one. A lender with a slightly higher rate might calculate penalties on a fairer basis, allow larger lump-sum prepayments, let you port the mortgage to a new home or offer a shorter rate hold. If there is any chance you will sell, refinance or pay down a lump sum before the term ends, those features can be worth more than a tenth of a point.
- Ask how the prepayment penalty is calculated and which rate is used for comparison.
- Check annual prepayment privileges: lump sums and payment increases.
- Ask whether the mortgage is portable and whether it is registered as a standard or collateral charge.
- Get the rate hold period in writing.
A quick checklist before you accept
If you are renewing rather than buying, the same logic applies, with one extra advantage: switching lenders at the end of a term does not trigger a prepayment penalty. See the renewal checklist.
- Grade the exact offer (rate, term, insured or not) in the checker.
- Convert any gap into dollars over the term with the rate difference calculator.
- Get at least one competing written quote for the same term.
- Read the penalty and prepayment section of the disclosure before signing.