A blonde man with semi long hair, wearing a sweater as he looks at this laptop screen. 

In the world of mortgages, you have the option of two different types of interest rates.

When it comes to buying your dream home, don't forget to consider this very important factor: if it's better to choose a fixed-rate or variable-rate mortgage? 

A fixed-rate or a variable-rate mortgage: which should you choose

<p id="">When it comes to buying your dream home, most of your energy is spent looking for something that fits all your criteria. Does it have enough natural light? Is it a condo or a house? How much will property tax cost you a year? But, it’s just as equally important to ask: should I choose a fixed-rate or variable-rate mortgage?&nbsp;</p><p id="">In the world of mortgages, you have the option of two different types of interest rates: a fixed-rate mortgage or a variable-rate mortgage.&nbsp;</p><h2 id="">What is a fixed-rate mortgage?&nbsp;</h2><p id="">A fixed mortgage rate is a mortgage rate that does not change over the life of the term, which is usually five years. The interest rate is set at the time you get the mortgage and remains fixed for the life of the loan, regardless of changes in market conditions. This type of mortgage offers you the stability of knowing their monthly payment will not increase over time.</p><h2 id="">What is a variable-rate mortgage?</h2><p id="">A variable mortgage is a type of mortgage where the interest rate can change over time. This can generally be broken down into two types: a variable-rate mortgage (VRM) or an adjustable-rate mortgage (ARM).</p><p id="">In an adjustable-rate mortgage, your monthly mortgage payments can go up or down based on the Bank of Canada’s prime interest rate. However, in a variable-rate mortgage, your monthly mortgage payments won’t change with the prime rate, however the portion of your payments that go towards your interest payment and your principal payment will change. </p>

<h2 id="">Why choose a fixed-rate mortgage?&nbsp;</h2><p id="">A fixed mortgage rate is a great choice for many homebuyers because it offers peace of mind: you know exactly how much your monthly mortgage payment will be for the life of the loan, so you can budget accordingly. Additionally, if interest rates rise in the future, you'll still be paying the same amount each month on your mortgage.</p><p id="">Of course, there are some potential drawbacks to a fixed mortgage rate, as well. For example, you may end up paying more interest over the life of the loan if rates fall after you lock in your rate. However, if you plan to stay in your home for many years, the stability of a fixed rate can be worth the extra cost.</p><h2 id="">Why choose a variable mortgage rate?</h2><p id="">There are a lot of reasons to choose a variable mortgage rate. For one thing, they tend to be lower than fixed mortgage rates. This can save you a lot of money over the life of your loan. Additionally, variable rates can offer more flexibility than fixed rates. You may be able to make extra payments or even pay off your loan early without penalty.</p><p id="">Of course, there are some risks associated with variable-rate mortgages. If interest rates go up, your monthly payments could increase as well. In some cases, rising rates may push you closer to your <a href="https://www.pine.ca/blog/whats-your-mortgage-trigger-rate" id="">trigger rate</a>–which, if you’re on a variable-rate mortgage and not an adjustable-rate mortgage, you might end up paying more for your interest than your principal.</p><h2 id="">Can you switch from a variable-rate mortgage to a fixed-rate mortgage?&nbsp;</h2><p id="">Simply put: yes, you can. You will have the option to convert your loan to a fixed-rate mortgage if you start to feel like you can't handle the risk of a variable-rate mortgage. However, it’s always important to talk to your lender to get a sense of what the current fixed-rate looks like.&nbsp;</p><h2 id="">Can you negotiate your interest rates?</h2><p id="">You may be able to negotiate on the interest rate a bit. Comparing rates from various lenders is the best way to see what option is best for you. In most instances, negotiating will be in your favour if you have a good mortgage application.&nbsp;</p><p id="">This can look like having a good down payment and credit history, proof of employment and stable income, and a low debt-to-income ratio.&nbsp;</p><h2 id="">How your interest rate impacts your mortgage penalties&nbsp;</h2><p id="">In some situations, you may want to pay off a larger chunk of your mortgage in one go. Doing this without having to pay a penalty is called a “prepayment.” Typically this prepayment can be defined as 15/15 or 20/20–the monthly percentage increase is the first number and the second number is the annual lump sum percentage.&nbsp;</p><p id=""><strong id="">Example: </strong>If you have a prepayment of 20/20 that means you can increase your mortgage payments (whether monthly, bi-weekly, weekly, etc) by 20% per year. Say your home is worth $500,000, that means you’d also only be able to provide a maximum annual lump sum that equals 20%, which in this case is $100,000.&nbsp;</p><p id="">The amount you’re allowed to pay varies between mortgage lenders, so it’s important to speak to yours about your maximum allowance.&nbsp;</p><p id="">However, a prepayment penalty is a fee that you may have to pay if:&nbsp;</p><ul id=""><li id="">You pay more than the allowed additional amount toward your mortgage</li><li id="">You break your mortgage early, prior to the end of your term&nbsp;</li><li id="">You transfer your mortgage to a different lender, prior to the end of your term</li><li id="">You pay off your entire mortgage before the end of the amortization period&nbsp;</li></ul><p id="">Generally, fixed-rate mortgages will charge you the largest penalty, based on the interest rate differential (IRD)–which is the difference between your original locked-in rate and the new rate for the remaining term of the mortgage.&nbsp;</p><p id="">If you have a variable-rate mortgage, though, your penalty will be a lot less: on average, it’s about three months’ worth of interest payments.&nbsp;</p><p id="">Ultimately, it's up to you to decide whether a variable mortgage rate is right for you. Weigh the pros and cons carefully before making your final decision. And, if you need help making that decision one of our mortgage advisors will be happy to help.</p><p id="">Fill in our <a href="https://apply.pine.ca">quick and easy application</a>&nbsp; today to get started.</p>

Ready to purchase your dream home? You’ll be pleasantly surprised to know that you won’t need to offer the entire cost up-front. 

In order to secure a mortgage loan in Canada, most financial providers–whether a bank or private lender–will need to confirm that you have a down payment. 

How much you'll need for a down payment in Canada

<p id="">Ready to purchase your dream home? You’ll be pleasantly surprised to know that you won’t need to offer the entire cost up-front.&nbsp;</p><p id="">Instead, thanks to the option of mortgage financing, you can offer up a down payment and get started on building your equity. But, how much down payment will you need? And how will the amount affect your mortgage rates?&nbsp;</p><h2 id="">What is a down payment?</h2><p id="">For most Canadians, in order to secure a mortgage loan, most financial providers–whether a bank or private lender–will need to confirm that you have a down payment. Defined as a lump-sum of money paid up-front, the down payment is a percentage of the overall price of the home, with the rest of the cost being covered by a mortgage.&nbsp;</p><h2 id="">Is your down payment the same thing as your deposit?&nbsp;</h2><p id="">When your offer to purchase a home is accepted by the sellers, you’ll need to put down a deposit to indicate that you are serious about following through.</p><p id="">Generally, this deposit is a sum of money that is paid upfront and on average &nbsp;is about 5% of the offer price, in the form of a certified cheque or bank draft.&nbsp;</p><p id="">Consider the deposit a down payment on the down payment. Once the sale officially goes through, the amount of your deposit is deducted from the down payment.</p><h3 id="">Calculating the minimum down payment you’ll need</h3><p id="">Given that a down payment is calculated as a percentage of the total costs of the home, the rule of thumb is:&nbsp;</p><ul id=""><li id="">If the home costs $500,000 or less, you’ll need a minimum of 5% of a down payment</li><li id="">If the home costs more than $500,000 up to $99,999, your down payment will be 5% on the first $500,000 and then 10% of the remainder above $500,000</li><li id="">If the home costs $1 million or over, you’ll need a minimum 20% down payment</li></ul>

<p id="">While there’s a silver lining knowing that, depending on your price point, you won’t have to fork over an automatic 20% down payment, it’s important to note that if you do give less than 20% <a href="https://www.pine.ca/blog/what-is-mortgage-insurance-and-do-you-need-it" id="">you will need to get mortgage insurance</a> to qualify.&nbsp;</p><h2 id="">Does your down payment impact your mortgage?&nbsp;</h2><p id="">You might not have known this, but mortgage rates can change depending how much down payment you have available.</p><figure id="" class="w-richtext-figure-type-image w-richtext-align-fullwidth" style="max-width:1450px" data-rt-type="image" data-rt-align="fullwidth" data-rt-max-width="1450px"><div id=""><img src="https://uploads-ssl.webflow.com/610bf2053f1224eac60b56b0/632339bbb6aa31b5e0da50b9_Pine_Downpayment_Calculations_v2%20(2).png" loading="lazy" id="" width="auto" height="auto"></div></figure><p id="">‍</p><h3 id="">When you have less than a 20% down payment</h3><p id="">According to the Canada Mortgage and Housing Corporation, a mortgage with less than 20% is considered “high ratio.” If the house you’re purchasing is less than $1 million, you’ll need to also get mortgage insurance with this down. In this situation, mortgage insurance doesn’t protect you, but instead protects the lender in case you’re unable to make your payments.&nbsp;</p><p id="">While this will add premium payments to your monthly mortgage costs, lenders are more willing to offer some of the best–and in most cases lower–interest rates.&nbsp;</p><h3 id="">When you have a 20% down payment</h3><p id="">While you might avoid paying mortgage insurance when you offer a minimum 20% down payment, because the lender isn’t protected by the CMHC if you stop making your payments, there is a bit more risk for said lender. That’s why, in this situation, rates are just slightly higher with this down payment.&nbsp;</p><h3 id="">When you have 35% or more of a down payment</h3><p id="">The higher your down payment is, the lower your lender risk goes, putting you closer towards the mortgage rates seen for “high ratio” purchases. For some lenders, 25% down payment gets you very close to their lowest rates, while others require 35%.&nbsp;</p><p id="">How do you decide if you should put down a larger or smaller down payment?&nbsp;</p><h2 id="">Why you should opt for a larger down payment</h2><p id="">Overall, a larger down payment means you’re borrowing less money, which means you’ll pay less in total interest costs over your mortgage’s lifetime. Not only does saving for a larger down payment help you save overtime, it also offers you:&nbsp;</p><ul id=""><li id=""><strong id="">Smaller monthly payments: </strong>Borrowing less money, means you’re paying back a lower amount. Low monthly payments can definitely make your life easier, especially if your wallet needs a little wiggle room for unforeseen circumstances like a job loss, or large surprise expense.</li><li id=""><strong id="">Lower rates:</strong> As mentioned, the higher your down payment, the lower your interest rates could be.&nbsp;</li><li id=""><strong id="">No mortgage insurance:</strong> You’ll also save by avoiding having to add mortgage insurance into your monthly payments, as premiums.&nbsp;</li><li id=""><strong id="">Future borrowing power:</strong> Thinking you might need more loans or credit in the future? Having a lower mortgage means you’ll also have a lower monthly debt-to-income (DTI) ratio–which compares how much debt you have, compared to how much money you make. Having a lower DTI ratio–usually below 36%–looks good in the eyes of lenders and/or banks.&nbsp;</li><li id=""><strong id="">Potential equity:</strong> The larger your down payment, the more equity you’re putting in your home. If you put down 25% down payment, you now own 25% of your home right off the bat, versus only 5% or 10%. With more equity in your home, the more you’ll be able to potentially borrow against with a home equity line of credit, in the future.&nbsp;</li></ul><h2 id="">Why you should opt for a smaller down payment</h2><p id="">Obviously the best pro about a smaller down payment is that you don’t have to save up as much, making it possible for you to:&nbsp;&nbsp;</p><ul id=""><li id=""><strong id="">Buy sooner:</strong> For a lot of people, saving up for a 20% down payment can take a long time–which could look like years, or even decades. Having a smaller down payment means you might be able to get your dream home–or at least your first home–sooner than later.&nbsp;&nbsp;</li><li id=""><strong id="">Have emergency funds or cash for other priorities:</strong> Let’s say you do have enough for 20%–giving up all of your savings can sometimes feel overwhelmingly scary. What if there’s an emergency? What if something happens–like a health scare or your car breaking down–where you need money ASAP? Giving a smaller down payment means you can still split your savings by investing part into a home, and the other part can stay in your account as emergency funds. And in other instances, sometimes you just want to keep your cash in your retirement savings or towards something else, like a business or stocks&nbsp;</li><li id=""><strong id="">Have money to pay for renovations:</strong> Keeping some of the cash on hand means you can put it towards potentially giving your space a facelift to turn your house into a home.&nbsp;</li></ul><p id="">At the end of the day, the down payment you offer has to make sense for you and the home you’re looking to buy. But if you need more help figuring out what’s best, our Pine mortgage experts are always here to help.&nbsp;</p><p id=""><a href="https://apply.pine.ca">Apply through our easy-to-use application</a> and we’ll put you in touch with one of our agents to help you with your down payment questions and home-buying journey.&nbsp;</p>

This means that you’ll need to put in a bit more on your monthly payments thanks to mortgage insurance premiums. 

Despite what the name suggests, mortgage insurance-or default mortgage insurance-isn’t for protecting you or your home: it protects who you’re borrowing from. 

What is mortgage insurance and do you need it? 

<p id="">While being a homeowner is a common goal for most Canadians, being able to fork over cash upfront isn’t always easy–that’s where getting a mortgage comes in.&nbsp;</p><p id="">In Canada, you can secure a conventional mortgage when you offer up a 20% down payment of the property price and your lender will provide 80% of the financing you need to own your dream home.&nbsp;</p><p id="">However, for those who might find it a little difficult to juggle saving that much with other life expenses, the beauty is, depending on the home’s price point, all you need is a 5% down payment.&nbsp;</p><p id="">While this might mean not having to save as much to secure conventional mortgage, right off the bat, it does mean that you’ll need to put in a bit more on your monthly payments thanks to mortgage insurance premiums.&nbsp;</p><h2 id="">Understanding mortgage insurance</h2><p id="">Mortgage insurance–also known as having an insured mortgage or mortgage default insurance–is required to secure the financing, in cases where you can only provide less than 20% for your down payment.&nbsp;</p><p id="">And, despite what the name might suggest, mortgage insurance isn’t meant to protect you or your home–it protects who you’re borrowing from, in case you stop making payments on your mortgage.&nbsp;</p><p id="">Overall, mortgage insurance does offer you some flexibility, as this cost can be paid in a lump sum when your mortgage is finalized, or it can be added to your future monthly payments as a premium.</p><h2 id="">How much do you need to save for a down payment?</h2><p id="">In Canada, to qualify for a mortgage, there are a <a href="https://www.pine.ca/blog/5-factors-affecting-your-mortgage-approval" id="">few factors</a> that can affect your ability to secure one, like a <a href="https://www.pine.ca/blog/credit-score-mortgage-canada-2022" id="">good credit score</a> and the amount of money you have available for a down payment.&nbsp;</p><figure id="" class="w-richtext-figure-type-image w-richtext-align-fullwidth" style="max-width:1450px" data-rt-type="image" data-rt-align="fullwidth" data-rt-max-width="1450px"><div id=""><img src="https://uploads-ssl.webflow.com/610bf2053f1224eac60b56b0/62fbfa7bbf2d98506be78b27_Pine_Down_Payment_Table_01_Infographic_v1.png" loading="lazy" id="" width="auto" height="auto"></div></figure><h2 id="">How much will mortgage insurance cost and how do you pay?&nbsp;</h2><p id="">According to the <a href="https://www.cmhc-schl.gc.ca/en/professionals/industry-innovation-and-leadership/industry-expertise/resources-for-mortgage-professionals/mortgage-loan-insurance-and-premiums" id="">Canadian Mortgage and Housing Corporation</a> (CMHC), the calculation of your mortgage insurance premium depends on the amount of the down payment, usually ranging from 0.6% to 4% of the value of the mortgage.&nbsp;</p><p id="">On an $800,000 home, if you could only put down 10% (or $80,000), your mortgage insurance would be $22,300. While there is an option to pay the cost upfront, most people often build it into their mortgage loan, increasing their monthly payments.&nbsp;</p><p id="">It’s also important to note that if you’re buying a home in Ontario, Quebec, Saskatchewan, or Manitoba, you pay a provincial sales tax on your mortgage insurance premiums. Unfortunately, this cost can’t be built into your mortgage and instead has to be paid upfront. But, if you purchase an energy-efficient home or renovate your home to become one, you can get a refund of up to 25% of your premiums.</p><h2 id="">The pros of of mortgage insurance</h2><p id="">Unsure if getting an insured mortgage is right for you? If you’re looking to own your dream home sooner than later, it just might be. Not only will you be able to potentially lock down the home you want, you can also start building your equity sooner.&nbsp;</p><p id="">It’s also good to know that insured mortgages often get better rates than uninsured mortgages.&nbsp;</p><h2 id="">The cons of mortgage insurance</h2><p id="">Undoubtedly, one of the biggest cons of mortgage insurance is the additional premium cost. Most of the time, buyers opt to add the insured mortgage costs to their mortgage amount, meaning you’ll pay interest on the mortgage and the loan insurance–for the length of your mortgage.&nbsp;</p><h2 id="">Should you opt for a conventional mortgage or an insured mortgage?</h2><figure id="" class="w-richtext-figure-type-image w-richtext-align-fullwidth" style="max-width:800px" data-rt-type="image" data-rt-align="fullwidth" data-rt-max-width="800px"><div id=""><img src="https://uploads-ssl.webflow.com/610bf2053f1224eac60b56b0/62fb9f4ecf7fb117ad97afa4_Pine_Down_Payment_Table_02_Infographic_v1%20(2)%20(1).png" loading="lazy" id="" width="auto" height="auto"></div></figure><p id="">It comes down to this: the more you can contribute to your down payment, the lower your monthly premiums on any mortgage loan insurance. With interest rates rising, a higher down payment will also save you money in the long term, which can help you pay off your mortgage faster.</p><p id="">To avoid mortgage loan insurance, a 20% down payment is required for all mortgages. If you don’t have the funds upfront to put down 20% but can handle a larger monthly payment, or if you need to reserve funds for home renovations, a lower down payment with mortgage loan insurance may be the best option for you.</p><p id="">However, you never want to be in a tight spot where you’re “house-poor” and have no available cash-flow in case of emergencies. If you’re looking for advice, <a href="https://apply.pine.ca">fill in our quick and easy application and connect with one of our mortgage experts </a>will be happy to help you figure out the options that work for you.&nbsp;</p>

Mortgage payment calculator

Less worries. Less stress.

And a home you love.

Share your results