How are mortgage rates determined?


It depends on a few factors, including your credit score and how many properties you already own.

Mortgage rates can refer to one of two things — how much interest you are personally charged to borrow money to buy a house, or the overall rising and falling of rates nationwide in response to various economic factors. How much you are personally charged depends on both your income history and how well you’ve managed your credit history in the eyes of credit reporting agencies like Equifax.

If you make decent money and have a good credit score — 650 and up is considered solid — you’ll likely be able to secure a relatively low-interest mortgage from a traditional source like a name brand bank. If your earning history is a bit spottier and you’ve accumulated some bad credit karma through late or non-payment on credit cards, you may be frozen out of the traditional banks and be forced to seek a mortgage from more forgiving lenders, called sub-prime lenders (also called “B” or alternative, non-conforming lenders).

You may have heard of Home Capital Group, which is Canada’s largest non-prime mortgage lender. Sub prime lenders like these aren’t giving money to less qualified candidates out of a sense of kindness or social responsibility; they’re in it for the money, and will tack on a premium of as much as 3 percentage points onto the interest rates for mortgages for those who are deemed more likely to default. The overall rising or falling of Canadian mortgage rates is largely dependent on the accessibility of money for banks to lend — something that is directly affected by the actions of the Bank of Canada through their manipulation of the country’s benchmark interest rate, called the key policy interest rate.

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