Mortgage Interest Rates Guide
How mortgage rates are actually set, what makes them rise and fall, the difference between posted and discounted rates, and practical steps to secure the lowest rate on your mortgage.
How Much Does 1% Matter?
On $400k mortgage
+$222/mo
per 1% rate increase
Extra interest (25 yr)
$66,600
from that 1% difference
Broker vs posted rate
0.5–1.5%
typical discount available
How Mortgage Rates Are Set
VVariable Rates
Variable mortgage rates are tied to the lender's Prime Rate, which moves with the Bank of Canada's overnight rate (set 8 times per year).
Bank of Canada ↑0.25% → Prime rate ↑0.25% → Variable mortgage ↑0.25%
Typical variable rate = Prime rate − 0.5% to Prime + 0.5%
FFixed Rates
Fixed mortgage rates are priced off Government of Canada Bond Yields — specifically the 5-year bond. When bond yields rise, fixed rates follow.
5-yr bond yield ↑ → Fixed mortgage rates ↑ (often within days)
Fixed rate spread = bond yield + lender margin (typically 1.5–2%)
How Rate Changes Affect Your Payment
Monthly payment and total interest on a $500,000 mortgage (20% down, 25-year term) at various interest rates.
| Interest Rate | Monthly Payment | vs 5% Rate | Total Interest (25 yr) |
|---|---|---|---|
| 3.5% | $2,497/mo | -$411 | $249,100 |
| 4% | $2,626/mo | -$282 | $287,800 |
| 4.5% | $2,762/mo | -$146 | $328,600 |
| 5%(baseline) | $2,908/mo | — | $372,400 |
| 5.5% | $3,044/mo | +$136 | $413,200 |
| 6% | $3,199/mo | +$291 | $459,700 |
| 7% | $3,533/mo | +$625 | $559,900 |
Posted Rate vs Discounted Rate
Posted Rate
The rate publicly advertised by lenders — used mainly to calculate your IRD penalty if you break your mortgage early. Almost nobody actually pays the posted rate.
Example: 7.19% (Big 6 bank posted)
Discounted Rate
The actual rate you negotiate or get through a mortgage broker — typically 0.5–1.5% below posted. This is what you should be comparing between lenders.
Example: 5.49% (negotiated/broker rate)
The IRD trap: Your penalty for breaking a fixed mortgage is often calculated using the gap between your rate and the posted rate (not discounted rate) for the remaining term. A large gap means a massive penalty. Always ask your lender exactly how they calculate the IRD.
Monthly Payments at Different Rates
20% down, 25-year term. See how much your payment changes with rate and home price.
| Home Price | 3.5% Interest | 4.5% Interest | 5.5% Interest | 6.5% Interest |
|---|---|---|---|---|
| $300k | $1,201/mo | $1,334/mo | $1,474/mo | $1,620/mo |
| $400k | $1,602/mo | $1,779/mo | $1,965/mo | $2,161/mo |
| $500k | $2,002/mo | $2,223/mo | $2,456/mo | $2,701/mo |
| $600k | $2,403/mo | $2,668/mo | $2,948/mo | $3,241/mo |
| $700k | $2,803/mo | $3,113/mo | $3,439/mo | $3,781/mo |
| $800k | $3,204/mo | $3,557/mo | $3,930/mo | $4,321/mo |
| $1.0M | $4,005/mo | $4,447/mo | $4,913/mo | $5,402/mo |
Based on 20% down payment, 25-year term, principal & interest only (excludes taxes, insurance, fees)
How to Get the Best Mortgage Rate
Use a Mortgage Broker
Brokers have access to 30–50+ lenders and can often find rates 0.3–0.8% below what your bank will offer. Their fee is paid by the lender, not you. This single step is often worth $10,000+ in savings.
Improve Your Credit Score
Scores above 740 get the best rates. Pay bills on time, reduce credit card utilization below 30%, and avoid new credit applications for 6 months before applying. Each 20-point improvement can reduce your rate.
Put Down 20%+ If Possible
Conventional mortgages (20%+ down) often qualify for lower rates than insured mortgages because lenders face less risk. You also get access to more lender options including credit unions and monoline lenders.
Get Pre-Approved and Rate-Lock
Most lenders hold your pre-approval rate for 90–120 days. Get pre-approved early — if rates rise, you're protected. If rates fall, ask your lender to match the lower rate.
Frequently Asked Questions
Variable rates move with the Bank of Canada overnight rate — set 8 times per year based on inflation, employment, and economic conditions.
Fixed rates move with Government of Canada 5-year bond yields, which change daily based on bond market trading, economic data, and global events.
Inflation is the single biggest driver of both: high inflation → higher rates. Falling inflation → lower rates.
On a $500,000 mortgage (25-year term), a 0.5% rate difference changes your monthly payment by about $145 and your total interest by about $43,500 over the life of the loan. On a $750,000 mortgage, that's ~$215/month and ~$65,000 total. Getting even a 0.25% better rate is worth significant effort.
Calculate your break-even: divide your total penalty (IRD or 3 months' interest) by your monthly savings. If you plan to stay in the home beyond that break-even point, refinancing makes sense. For example, a $6,000 penalty with $300/month savings = 20-month break-even. If you're staying 3+ years, refinancing is worth it.
Compare against rates posted on aggregator sites which show the best available rates in Canada. If your bank's offer is more than 0.2% above the best available rate for similar terms, it's worth negotiating or shopping. A mortgage broker can tell you within minutes if your rate is competitive.
Timing the market rarely works out. Waiting for lower rates often means competing against more buyers (demand rises when rates fall), bidding prices up. Run the numbers: if the home you want is $550k today and prices rise 5% while you wait a year, that's $27,500 more — often exceeding any rate savings. Buy when you're financially ready, not when you think rates will be optimal.
Fixed vs Variable Rate
Which type saves more — a full comparison with real numbers.
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