The housing market is starting to cool and you might wonder if now is a good time to start researching mortgage rates in Ontario. The ever-evolving landscape of the housing market requires clear understanding and informed decision-making to make the most of your money.
In this comprehensive guide, Forbes Advisor Canada presents the best mortgage rates in Ontario for July 2024. Our goal is to equip you with essential insights and insider strategies to empower your mortgage decisions amidst a dynamic and challenging housing market.
Rates current as of June 13, 2024.
We reviewed 100 mortgage lenders that do business both online and in-person throughout Canada. The lenders we reviewed represent some of the largest mortgage lenders by volume in Canada, which includes banks, credit unions and online lenders. Lenders that didn’t provide their mortgage rates or don’t operate in Ontario were not eligible for review.
Our conventional rates (rates that are uninsured) were generated through publicly available posted rates on the lender’s website, but also through the following borrower profiles that we presented to the lender anonymously by phone or online:
Our scores out of five are scored based on the following factors:
Though these rates are accurate at the time of publication, they are intended only to provide a ballpark figure and sample of the rates a lender may offer in that province for that particular mortgage term. That does not mean that you will qualify for the above rates or that the lender in question hasn’t changed those rates since publication. Please consult a mortgage lender or broker to get the best rate possible for your particular property-buying circumstance and financial situation.
Fixed-rate mortgage rates are priced off of Government of Canada 5-year bond yields that fluctuate daily. Five-year fixed mortgage rates are typically 1.5% above the 5-year yield, though this spread can vary between 1% and 2%. This means if bond yields go up, fixed-rate mortgage rates also go up. Periods of high inflation (which occur when the CPI is above the Bank of Canada’s 2% target) cause bond yields to rise; conversely, when inflationary pressures cool, bond yields also come down. For example, in 1981 when the CPI averaged 12.5%, Canada experienced the highest inflation in 33 years. In September 1981, bond yields hit 18.78% and the 5-year fixed mortgage rate hit 21.75%.
As of June 13, 2024, the 5-year benchmark bond yield is currently at 3.346%, down 29.09 basis points (or 0.2909%) from one year ago.
Variable-rate mortgages are affected by the Bank of Canada’s (BoC) monetary policy, namely interest rate hikes and cuts that occur eight times a year. The prime rate, or the rate the banks use to set the interest rates on their variable-rate products, is currently 6.95%. Variable rates will be quoted as plus or minus compared to the prime rate.
On June 5, 2024, the Bank of Canada cut its key interest rate by 25 basis points to 4.75%, its first rate cut in over four years. The BoC is widely expected to implement more rate cuts this year.
The Ontario housing market is experiencing a notable slowdown, according to recent figures from the OREA, with home sales 21.3% below the five-year average and 15.3% below the 10-year average, though activity is heating up in the first two months of 2024. On a year-over-year basis, home sales are up 18.2%. There was an increase of 26.8% of new listings year-over-year.
It’s important to note that Ontario’s property market remains the second most expensive in Canada. However, this recent pricing shift has contributed to a more balanced market, providing potential buyers with a more favourable environment with something new—options.
In its most recent rate announcement on June 5, 2024, the Bank of Canada (BoC) cut its key interest rate by 25 basis points to 4.75%, its first cut in over four years. This made Canada the first G7 bank to begin easing rates. The BoC was widely expected to begin rate cuts with this announcement.
“We’ve come a long way in the fight against inflation,” noted BoC Governor Tiff Macklem in his press conference opening statement. “And our confidence that inflation will continue to move closer to the 2% target has increased over recent months.”
While he admitted that inflation remains above the Bank’s 2% target and shelter price inflation is still high, CPI inflation has eased from a high of 8.1% in June 2022 to 2.7% in April 2024. This shows that monetary policy is working, noted Macklem, adding, “And with further and more sustained evidence underlying inflation is easing, monetary policy no longer needs to be as restrictive. In other words, it is appropriate to lower our policy interest rate.”
In its most recent Monetary Policy Report in April 2024, the BoC projected that inflation would stay around 3% into the second quarter of 2024, ease below 2.5% in the second half of the year and return to target in 2025. While risks to a continued downward trend with inflation persist, namely geopolitical risks, an overheated housing market or if wage growth remains high relative to productivity, there is growing confidence that this is the first of a series of cuts to come.
“If inflation continues to ease, and our confidence that inflation is headed sustainably to the 2% target continues to increase, it is reasonable to expect further cuts to our policy interest rate,” noted Macklem, adding, “But we are taking our interest rate decisions one meeting at a time.” The next rate announcement is on July 24, 2024.
Current average mortgage rates in Ontario are approximately:
(Rates as of June 13, 2024.)
According to Forbes Advisor Canada, the best mortgage rates in Ontario are:
(Rates as of June 13, 2024.)
An open mortgage offers flexibility to prepay your mortgage without penalties. In exchange, open mortgage rates tend to be higher than closed mortgage rates. Meanwhile, closed mortgages have penalties for exceeding an annual prepayment threshold.
A fixed-rate mortgage allows you to lock in a stable rate throughout your term. Fixed-rate mortgages are popular when borrowers expect interest rates to increase during their term. However, you’ll end up paying more interest if rates drop during your term.
Variable mortgage rates are tied to your lender’s prime rate. In Canada, three-quarters of variable mortgages have fixed payments, according to the Bank of Canada. Unlike the adjustable-rate mortgages, or ARMs where the amount you pay each month fluctuates with prime, with an variable-rate mortgage (VRM), an increasing rate won’t adjust your payment amount, but rather decrease the portion of each payment applied towards the loan principal. While variable-rate mortgages are less popular than fixed-rate mortgages due to their potential volatility, borrowers opt for variable-rate mortgages when they expect rates to drop throughout their term.
Your mortgage rate adjusts with your down payment amount. Interestingly, you’ll receive the lowest mortgage rates when your down payment is below 20%. This protects lenders because you’ll need separate mortgage default insurance from the Canada Mortgage and Housing Corporation (CMHC). Although your mortgage rate decreases, the additional insurance costs will affect your cost of borrowing. Conversely, larger down payments mitigate lender risk, leading to a reduction in your interest rate. Interestingly, lenders face the highest risk when the down payment is exactly 20%.
Longer amortization periods typically have higher interest rates, compared to shorter ones. In addition, extended amortization periods increase your lifetime interest paid. Conversely, shorter amortization periods decrease the amount of interest paid throughout your loan, but increase your monthly mortgage payment.
While your amortization period is the length of time it takes to repay your loan, say 25 years, your mortgage term is the amount of time before your mortgage renews, typically one, three, five or 10 years, with the most popular term typically being five years. Historically, the longer your term, the higher the interest rate.
Investment properties and secondary vacation homes represent increased risks versus primary residences. Lenders offset these risks by charging you higher interest rates.
Refinancing your mortgage generally increases your interest rate compared to purchasing a new home. This is because lenders perceive new home purchases as less risky than significant alterations to an existing mortgage. The interest rate you receive upon mortgage renewal is contingent on both your creditworthiness and the prevailing market conditions at the time of renewal.
Lenders favour a stable employment history, especially permanent positions, indicating financial stability and a reliable income. Self-employed and contract workers need extra documentation to secure a good interest rate.
A higher credit score can result in lower mortgage rates. In Canada, most mortgage lenders want to see a score exceeding 680. Anyone with a score below that number will likely need to work with private lenders, who have much higher interest rates.
Lenders assess your ability to make mortgage payments using two key ratios: Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS). Lower ratios signify that your income can sufficiently cover payments, enhancing your eligibility for a mortgage. In Canada, the typical maximum GDS and TDS ratios are 39% and 44%, respectively.
According to the Ontario Real Estate Association (OREA), the average home price in the province (as of May 2024) is $890,634. At a minimum, potential homeowners need to put down 5% of the first $500,000, and 10% of the remaining amount up to $999,999. (Purchases over $1 million require a 20% down payment.) So that average-priced home requires a down payment of 7.19%, or $64,063.
Keep in mind that down payments below 20% require additional mortgage default insurance. Once you factor in the cost of the mandatory insurance, which if purchased from CMHC (the most common provider), adds another $33,063, you’ll have an outstanding mortgage of $859,634. To decrease your mortgage size, you’ll need to increase your down payment.
When you purchase a property in Ontario, you must pay a land transfer tax on the fiar market value of the property. Similar to income tax, the land transfer tax rates are graduated, so you pay different rates on different value brackets.
For example, assuming a property purchased for $400,000, the land transfer tax is calculated as follows:
The first $55,000 x 0.5% = $275
The amount between $55,000 and $250,000 (or $195,000) x 1% = $1,950
The amount exceeding $250,000 (or $150,000) x 1.5% = $2,250
The total land transfer tax payable is $4,475.
Boosting your creditworthiness is crucial for securing the best mortgage rate in Ontario. You can achieve this through timely payments and responsible credit management. Once you’ve improved your credit profile, be sure to compare various lenders to identify competitive rates. One appealing option that many borrowers consider is the 3-year fixed mortgage due to its favourable terms.
Ontario borrowers and brokers operate within a regulated lending framework overseen by the Financial Services Regulatory Authority (FSRA). The FSRA’s goal is to ensure accountable and transparent mortgage transactions. They act as a centralized authority, providing comprehensive licensing and compliance requirements, regulatory updates and educational resources for mortgage brokers, agents, brokerages and administrators.
The Mortgage Brokerages, Lenders, and Administrators Act is an Ontario law that oversees the mortgage industry. It requires companies and individuals who deal with mortgages to have a licence.
Another key element is that mortgage brokers must clearly show borrowers how much it will cost to get a mortgage from them. The FSRA can investigate and penalize licensed mortgage lenders if they break the law. There are fines and jail penalties for serious offences.
A mortgage broker connects you with a lender. As of April 1, 2023, the FSRA has streamlined the process for criminal record checks, designed to promote a secure and transparent environment for borrowers.
There are three key ways to save on your mortgage in Ontario:
Take advantage of prepayment privileges: Most closed mortgages allow you to make a lump sum payment, between 10% and 20% on the original principal, once per year without penalty.
Accelerate your payments: Opting for bi-weekly payments, for example, adds an extra month’s payment each year.
Take advantage of falling interest rates: If you have a convertible mortgage, switch to a new lower rate at the end of your initial term. Or, if your mortgage is coming to maturity, talk to your broker about whether a variable or fixed-rate mortgage at a lower rate makes sense.
Ontario offers various first-time home buyer programs. Notably, this includes the Ontario Land Transfer Tax Refund that can refund you up to $4,000. Toronto residents can further reduce closing costs through the First-Time Purchaser Rebate, potentially saving a total of $8,475.
Several Ontario municipalities, including Niagara, Kingston, Simcoe, Region of Waterloo, Chatham-Kent,District of Muskoka, Brantford, and Dufferin County have homeownership incentive programs. They can provide down payment assistance and forgivable loans based on income and property value.
On a Federal level, Canada offers various programs such as the First-Time Home Buyer Incentive, the Home Buyers’ Plan and the new First Home Savings Account (FHSA).
However, as of March 31, 2024, the First-Time Home Buyer Incentive will be discontinued. The deadline for new or updated submissions was March 21, 2024 at midnight eastern time. Read our Feds Scrap First-Time Home Buyer Incentive Program news article to learn more.
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1
Nesto Inc.
Mortgage refinancing service
Yes
Mortgage rates
Lower than the national average
Days to close
30
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Bank of Montreal (BMO)
Mortgage refinancing service
Yes
Mortgage rates
About the same as the national average
Days to close
18
Canadian mortgage rates are expected to remain higher than previous levels for the near-to-medium term. A recent report by TD predicts that the Bank of Canada is anticipated to gradually reduce its policy rate back to the neutral rate of 2.25% by 2025. Much depends on the Bank of Canada’s benchmark rate—as it drops due to easing inflation, declines in Ontario’s mortgage rates could follow.
Lenders view refinancing as riskier than new purchases, so they offset this increased uncertainty by charging slightly higher interest rates.
Of the Big Six Banks, BMO currently offers the best mortgage rates in Ontario. Their 3-year fixed is at 5.65%, a 5-year fixed is at 5.14%, and their 5-year variable rate is at 6.70%, as of June 13, 2024. Online lenders and credit unions frequently offer Ontario’s most competitive rates, while big banks face pressure from high overhead costs.
Related: BMO Mortgage Rates 2024
Currently, average 3-year fixed mortgage rates in Ontario sit around 5.98% and 5-year fixed mortgage rates sit around 5.29%. If you’re looking for a variable-rate mortgage, 3-year rates currently average 6.57% and 5-year variable rates average 6.74%. Always shop in real time to find the best pricing from all available lenders.
Currently, the best 5-year fixed rate in Ontario is 4.54% from Nesto Inc.
