How are mortgage rates calculated in Canada?
A mortgage rate is a funding cost plus a margin. The funding cost is what the lender pays to raise money — a Government of Canada bond yield for fixed-rate terms, or the prime rate (which follows the Bank of Canada) for variable-rate terms. On top of that base, the lender adds a spread to cover profit and risk, and that spread flexes with your credit, your down payment, the term, the property, and whether the mortgage is default-insured. The final quote is those two layers combined.
What sets fixed mortgage rates specifically?
Fixed rates track Government of Canada bond yields for a comparable term — a 5-year fixed loosely follows the 5-year bond. When bond yields rise, lenders’ cost of locking in money for that term rises, so fixed rates drift up; when yields fall, fixed rates tend to ease. Bond yields move daily on inflation data, economic growth, and global markets, which is why fixed-rate offers can change week to week. See our fixed vs variable page for how this compares to variable.
What sets variable mortgage rates?
Variable rates are quoted as the prime rate plus or minus an adjustment — for example, prime minus a set discount. Prime moves when the Bank of Canada changes its overnight policy rate, so your variable rate can shift during your term. The discount off prime is locked at approval, but the prime figure itself floats. Our prime rate page explains how the policy rate flows through to your payment.
Why do insured mortgages sometimes have lower rates?
When you put less than 20% down, your mortgage is high-ratio and carries default insurance (CMHC, Sagen, or Canada Guaranty). That insurance protects the lender against loss, so the lender takes on less risk and can price a thinner margin — which is why an insured rate can undercut an uninsured one even though you paid a premium. Uninsured and insurable rates differ because the lender’s risk differs, not because one borrower is ‘better.’
How does my down payment or loan-to-value affect the rate?
Loan-to-value (LTV) is the loan divided by the property value. A lower LTV — a bigger down payment or more equity — means the lender is lending a smaller slice of the home’s worth, which is lower risk and often a sharper rate. Counterintuitively, a very small down payment can produce a lower rate because the mortgage becomes insured; the mid-range (just over 20% down, uninsured) sometimes prices highest. We map where your LTV lands on the curve.
Does my credit score change the rate I’m offered?
Yes. Credit is a core input to the risk margin. A strong score signals reliable repayment, so A-lenders reserve their best pricing for it. Weaker or thin credit pushes a file toward higher-margin A pricing or toward B and private lenders, where rates are higher to offset the added risk. Improving your score before you apply can move you into a lower price band — see our credit-score-for-a-mortgage and improve-credit-score pages.
Why is the posted rate different from the rate I actually get?
Posted rates are a lender’s public benchmark and are usually higher than what’s available in practice. The real, discounted rate depends on your file and on competition among lenders for it. A broker with access to 100+ lenders sees the true market rate for a profile like yours, which is typically well below any single bank’s posted number. Never treat a posted rate as the rate you must pay.
Does the mortgage term length change the rate?
It does, independent of your credit or down payment. Different terms (1, 2, 3, 4, 5 years and beyond) draw on different funding costs, so a 3-year fixed and a 5-year fixed can be priced quite differently at the same moment. The shape of the bond yield curve decides which term is cheapest on any given day. Our 3-year vs 5-year page walks through how to choose.
Can I influence the rate I’m calculated, or is it fixed?
You can influence a surprising amount. You control your credit, your down payment size (and therefore LTV and insurability), your choice of term, and your choice of lender. What you can’t control — bond yields and the prime rate — is the market backdrop. The strategy is to optimize your own inputs, then shop the whole lender market so the margin you pay is the thinnest one available for your file.
