Mortgages are one of the largest financial commitments most Canadians will ever make. With house prices rising across the country, choosing the right mortgage lender to work with is more important than ever.
Understanding the Canadian Mortgage Landscape
Before diving into specific lenders, it’s important to understand the overall mortgage market in Canada. A few key things to know:
Types of Mortgages
There are two main types of mortgages available in Canada:
Fixed-rate mortgages: With a fixed-rate mortgage, the interest rate stays the same for the entire term (usually 2, 3, 4, or 5 years). This provides predictable monthly payments that don’t fluctuate with changing market rates.
Variable-rate mortgages: Variable (or floating) rate mortgages have an interest rate that moves up and down in line with the bank’s prime rate. This means your payments can go up or down over time as rates change. However, variable rates tend to be lower than fixed rates when you first take out the mortgage.
Within these two main types, there are also options like closed and open mortgages that affect your ability to repay or re-finance before maturity. Understanding the pros and cons of each type is important for choosing the best fit.
Amortization Period
The amortization period is how long it will take to pay off the full amount of the mortgage if you make the scheduled payments. Common periods are 5, 10, 15, 20, 25, and 30 years. A longer amortization has lower monthly payments but results in paying more interest over the life of the loan.
Down Payment Requirements
Most lenders in Canada require a minimum down payment of 5% for purchases of homes valued under $1,000,000. For amounts over that value, higher down payments between 5-20% may be required depending on the lender and the size of the loan. Having a larger down payment can mean lower fees and mortgage insurance costs.
Insured vs. Uninsured Mortgages
If you make a down payment of less than 20% on a property purchase, the remainder of the loan is insured by the Canada Mortgage and Housing Corporation (CMHC). You will pay a one-time insurance premium upfront that protects the lender. Mortgages with down payments of 20% or more are “uninsured” and avoid this extra cost, but involve a higher financial risk.
Understanding your needs and balancing factors like rates, insurance costs, risk tolerance, and payment affordability is crucial for selecting the best mortgage structure. Talking to a mortgage broker or shopping rates directly with multiple lenders can help you analyze your options.
Evaluating Online-Only vs. Big Bank Lenders
Now that we have covered the basics of mortgages in Canada, let’s look at some of the most popular lending options. Canadian homeowners generally have a choice between “big bank” lenders that dominate physical branch networks across the country versus online-only competitors.
Benefits of Online Lenders
Online mortgage brokers and direct lenders tend to offer more competitive interest rates than big banks since they have lower overhead costs without physical branches. This can amount to savings of 0.20-0.50% on rates depending on factors like your credit profile and location.
In addition, many online lenders tout faster approval times since applications are done fully digitally without paperwork. You can typically get approved for a mortgage offer within 1-2 days versus the 2+ weeks it might take to go through a large branch network.
Streamlined digital processes also reduce hassle versus the traditional in-person route. You can apply, get pre-approved, and e-sign documents from any device without physically visiting a branch.
Benefits of Big Bank Lenders
However, the major banks still have advantages in terms of security, reliability, and customer service. Going with a recognized name provides reassurance for a major purchase like a home. Especially for first-time homebuyers, established brands can ease worries.
The branch networks are also useful for things like getting documents notarized in person if needed. Having a local branch you can physically visit for questions or issues provides more hand-holding through the process compared to an online connection.
Big banks also tend to have longer hours and more flexible scheduling if you work traditional business hours. Online operations generally have more limited support windows that may not align with your schedule.
From there, it becomes a trade-off based on your needs – are interest savings worth less hand-holding, or is security more important than rates? Balancing these factors determines which type of lender suits each borrower best.
Comparing Specific Lenders in Canada
Now that we’ve explained the key differences between online and brick-and-mortar lenders, let’s dive into some top options within each category to consider for 2024:
Online Mortgage Providers
Better Mortgage
- Offers ultra-competitive rates, often 0.3-0.5% lower than big banks
- Entire process can be done digitally from any device
- Approval decisions in 1 business day or less
- No broker fees and ability to verify rate holds without a credit check
Motus Bank
- Specializes in alternative lending with easier qualification than big banks
- Portfolio of specialty products like self-employed, first-time buyer, construction loans
- Fully bilingual online service in English and French
- Fast e-application and approval process
RatesDotCa
- Leading mortgage comparison site that allows rate holds from multiple lenders
- Offers tools to understand costs over full amortization periods
- Guides you to the best possible financing option within 15 minutes
- Partners with top lenders across Canada for fast pre-approvals
Big Bank Mortgage Providers
RBC Royal Bank
- Canada’s largest bank with extensive branch network for support
- Widely recognized with reputation for security and reliability
- Personal bankers can guide you through options in-branch
- Vast resources for niche products like portfolio mortgages
TD Canada Trust
- Promotes relationship banking benefits like discounts bundles with deposits
- User-friendly online portal and mobile app for account management
- Popular no-fee variable rate options for flexible repayment
- Competitive rates for clients with strong TD banking history
BMO Bank of Montreal
- National coverage with over 1,100 branches for advice and paperwork needs
- Underwriter perks like waived appraisal fees for certain clients
- Generous loyalty rewards on mortgages for existing BMO customers
- Preferred rates for factors like professional careers and home equity
Additional Lending Options
While online lenders and big banks make up the bulk of the Canadian mortgage market, there are some other alternatives worth exploring in certain situations:
Credit Unions
- Not-for-profit cooperatives owned by members with a community focus
- Often have perks like lower fees and offset accounts to avoid pre-payment charges
- Approval depends on your local credit union’s specific criteria and relationships
Alternative Lenders
- Private non-bank companies that provide mortgages with more flexible criteria
- Higher risk tolerance for things like borrowing over appraised value or low down payments
- Come at a trade-off of higher interest rates, pre-payment penalties, and fees
Private Mortgages
- Borrow directly from an individual lender, usually a relative or acquaintance
- Handshake agreements without paperwork beyond basic loan docs
- No fees or insurance but relational risks if terms aren’t upheld on both sides
Other Federal and Provincial Programs
- Initiatives exist to encourage first-time home ownership and affordable housing
- Examples include CMHC insured programs, provincial property tax rebates
- Work best for targeted demographics and property types within program guidelines
Choosing a Mortgage: Key Considerations
Now that the major lending options have been outlined, here are some important factors to weigh for selecting the best mortgage provider in 2024:
Interest Rates
- Shop rates across trusted sources to find the lowest possible rate for the term needed
- Consider online brokers for their rate competitiveness versus the major banks
Upfront & Ongoing Fees
- Account for fees involving appraisals, legal costs, property insurance until rates are held
- Avoid pre-payment charges if lump sum payments may be made before term maturity
Digital Experience & Support
- Weigh convenience of fully online applications versus hand-holding of local branches
- Consider access needs for things like document signing, inquiries, or issues that arise
Mortgage Features
- Pick fixed or variable based on career, plans for property, and risk tolerance for fluctuations
- Choose optimal amortization period to balance overall interest costs versus monthly cashflow
Personal Needs & Qualification
- Factors like credit history, down payment size, income documentation affect approval
- Consider niche lending advantages of big banks versus alternative online specialists
Conducting detailed rate shopping combined with thoughtful analysis of these key factors is crucial for securing the best mortgage to suit your unique financial situation and home purchasing goals. Don’t be afraid to consult a mortgage broker to understand all your options. They can guide you towards solutions tailored to your needs, saving you considerable time and effort in the process. Securing pre-approval offers from several competitive lenders allows productive comparisons across interest rates, terms, and total costs. Making an informed decision on your mortgage provider will save you money for years to come.
