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Your Guide to Getting the Best Mortgage Rates in Toronto

Along with Toronto’s ever-increasing demand for housing, mortgage rates have, inherently, been a topic of discussion over the last few months. This has generated many questions around the topic of mortgage qualification and its process.

In 2018, the Government of Canada introduced higher qualification standards for Canadian home-buyers. In the anticipation of continuous rising rate trends, these standards are used to ensure borrowers are capable of making higher payments on increasing rates.

These higher qualification standards have shifted Toronto-based home-buyers’ interest to private lenders who offer higher rates than many lenders but are willing to take on files that traditionally do not qualify.

As rent prices continue to increase in Toronto, more renters will be looking into homebuying.

If you’re interested in buying a mortgage in Toronto, it’s important to shop around. Toronto has plenty of lenders, making the lending marketplace robust enough to accommodate large numbers of borrowers.

About Toronto

Toronto is Canada’s largest city with a population of over 2,929,886 and a commuter population of 6,346,088 in its surrounding areas. Home to around 230 different nationalities, with 51% of its residents having been born outside of Canada, Toronto is recognized as one of the world’s most diverse metropolitan areas. Paired with an unemployment rate of 6.4% and an average household income of $104,378, Toronto is known to be Canada’s financial business hub.

Learn About Rates And Mortgages in Toronto

With the stricter lending laws in Toronto, it’s more important than ever to research mortgage rates before you apply for a home loan. Even a small percentage point can make a difference. Here are a few commonly asked questions about Toronto’s mortgage lending market.

Why compare Toronto mortgage rates on nesto?

When you’re ready for a home loan, comparison shopping is an important first step. Traditionally, this meant getting rate quotes from multiple lenders. That process was time-consuming and involved, leading some buyers to choose a lender after only considering two or three.

Nesto makes the rate-comparison process easy. First, the rate comparison is done for you. With minimal information, you can view quotes from multiple Toronto lenders side by side. These lenders are prescreened, so you know you’re getting the best. But you don’t even have to apply to see current rates. Simply visit nesto’s mortgage rate section to see current rates for Ontario.

Are Toronto mortgage rates higher than other cities?

Living in the largest city in Canada has its perks. Yes, home prices are high, especially in one of the upscale downtown neighborhoods. But this large city also has plenty of lenders. That keeps mortgage rates competitive as lenders strive to win the business of the homebuyers looking for financing.

Still, Canada’s interest rates are expected to rise this year, which could mean you’re paying more no matter where you live. Being in Toronto at least gives you a shot at a lower rate as lenders seek to keep consumers buying. Higher interest rates sometimes lead prospective homebuyers to hold off on searching for a new place to live, though. This can sometimes drive housing prices downward, but only if the supply starts to exceed demand.

Should I get a fixed-rate or variable-rate mortgage in Toronto?

Your first big decision as you shop for a home loan is whether you’ll go for a fixed-rate or variable-rate mortgage. Choosing one over the other could save you money over time. The challenge is figuring out which one is best for you.

With a fixed-rate mortgage, you lock in one rate that you pay for the duration of the term. At the end of that term, you enter the amortization period, where an interest rate is applied based on the interest rate for the time remaining to fully pay off your loan.

A variable-rate loan in Toronto works similarly in that you have an initial five-year term, followed by an amortization period. But with a variable mortgage, you don’t lock in an interest rate for that initial term. Instead, your rate fluctuates based on decisions from the Bank of Canada.

A fixed-rate mortgage is usually cheaper, but there are some downsides to it. Obviously, your rate can change, so if the interest rate suddenly soars, you’ll be safe. But with a fixed-rate mortgage, you’re locked in for a full five years. If you should need to sell the house and exit the loan during that time, you could face penalties.

For some people, the peace of mind of a fixed-rate loan is well worth that risk, though. Simply knowing the interest that will be applied, month after month, year after year, can also make budgeting more predictable. If you’re fairly sure you’ll remain in your house for the full length of that initial term, which is usually five years, a fixed-rate mortgage might be a better route for you.

About the Toronto Housing Market

As with most of Canada, the housing market in Toronto has enjoyed overwhelming demand over the past couple of years. This has led to a supply shortage that is only getting worse as the population expands. This lack of supply tends to boost prices up.

In 2022, housing prices in the greater Toronto area were up 28.4% year-over-year, which is almost 10% higher than the growth seen in Vancouver. This is notable because Vancouver has traditionally seen higher housing costs than Toronto. Toronto still isn’t the most expensive Canadian city, housing-wise, but it’s important to note the overall price increase if you’re buying in the area.

The downtown area of Toronto is especially bustling, with a recent census showing population growth of more than 16% from 2016 to 2021. The city as a whole only saw growth of only 2.3% during the same timeframe, so you might find you’re better off moving your home search outside of the downtown area.

Toronto first-time homebuyer rebates

Buying a home is expensive, especially when you factor in all the closing costs. But there are some opportunities available to Toronto homebuyers that could offer you some relief.

  • RRSP Home Buyer’s Plan: If you have a registered retirement savings plan, you may be able to take some money out of that plan to help pay the costs of getting into a home. The current limit on this withdrawal is $35,000. To qualify for this program, you must be a first-time homebuyer or be helping a relative with a disability buy a home.
  • First Time Home Buyer’s Tax Credit: Another program to help first-time homebuyers is the First Time Home Buyer’s Tax Credit. This lets you claim up to $5,000 in tax credits in the same year you buy a home to serve as a primary residence.
  • GST/HST New Housing Rebate: The GST/HST tax charged on purchases in Canada can get expensive with Toronto’s rising housing costs. The GST/HST New Housing Rebate is only available when you buy an eligible house. Eligible homes include those that have been substantially renovated prior to purchase or that were built on land you already owned.

Toronto Closing Costs

Any loan requires a closing process, which basically involves reading and signing contracts. As the biggest purchase a person makes, buying a home brings a stack of paperwork along with it. Much of that paperwork relates to the loan you’re taking to make that large purchase.

The biggest expense at closing will be the down payment your lender requires as part of agreeing to loan you the money. This ranges from 5% to 20% of the purchase price, and you’ll need to provide this payment at the closing meeting. At one time, this meant bringing a cashier’s check with you, but today this part of the process is generally done using a bank-to-bank wire transfer.

In addition to the down payment, you’ll need to come to the closing meeting ready to pay some fees. Your closing attorney should send over a detailed list of these fees at least a couple of days before closing so that you can prepare to pay them. Below are some of the costs you can expect to pay on a Toronto home purchase.

Type of costRate rangesEstimated cost (based on $500,000 home)
Realtor commissions*5% of purchase price$25,000
Home inspection feeFlat rate$300-$600
Land transfer tax2%$10,000
Legal feesFlat rate$1,000-$2,000
Title transfer feesFlat rate$50-$100

*Realtor commissions are usually paid by seller

In addition to these fees, your mortgage lender may order a property appraisal. This is done to ensure that the home is worth the money you’re borrowing to buy it. This can range from $400 to $700, but the mortgage company usually covers this cost.
Altogether, you can expect to spend between $11,000 and $14,000 to close on a $500,000 home in Toronto. In most cases, you will not be able to roll the cost into your mortgage, but you might be eligible for some rebates that can help.

Toronto Mortgage Brokers

With over 2,000 mortgage products available, and 15,000 licensed mortgage professionals in Ontario alone, it’s certain that home-buyers’ are overwhelmed with options.

Looking to invest in Toronto? Let us help you navigate the Toronto market and provide you with a better understanding of what mortgage rates you have access to. 

How to Apply for a Mortgage in Toronto

If you’re interested in buying a home, the best first step is to get prequalified. Nesto can help you find the lowest rates available to you while also issuing the preapproval necessary to start home shopping. This preapproval will let you know the maximum amount of home you can afford. You can take your preapproval letter to a real estate agent, who will know that you’ve already crossed one of the biggest hurdles to buying a home in the competitive Toronto housing market.

Meet with a mortgage expert

The idea of meeting with a mortgage expert can be daunting. But applying for a mortgage in Toronto today isn’t what it used to be. You can easily apply online and get prequalified in minutes. The rest of the lending progress can progress online, as well, only requiring an in-person meeting when it’s time to close.
If you do want that one-on-one consultation, you can easily meet with a mortgage broker. Most lenders will meet by phone, video chat, or in person, helping you find the option that works best for you.

Acquire all necessary documents

The mortgage application process is always paperwork intensive as lenders strive to covers their own risks by gathering as much information as possible. Each lender has separate requirements for the preapproval process, but you’ll often be asked to provide proof of income, proof of employment, and information about your debts and assets. Some lenders will check your credit score using a “soft credit pull,” which doesn’t impact your score, but others will run a full credit check that can lower your score.

Apply for mortgage financing

Once you’ve found a home and your contract has been approved by the seller, you’ll need to complete a full mortgage application. This is a much more involved process, but many lenders have a portal that allows you to upload all your documents directly. In the days between application and closing, avoid making any major purchases that could jeopardize your loan.

Sign & finalize your mortgage

The most exciting, and most stressful, part of the mortgage application process is closing. This is the point at which you’ll sign a stack of paperwork. The closing process officially transfers the home from the seller to you while also finalizing the loan to buy it. Once this process is complete, you’ll be a proud homeowner with a monthly mortgage payment to your lender.

What Affects My Mortgage Rate in Toronto?

Factors such as credit score and income play a big part in qualifying for the lowest interest rate in Toronto. The riskier a borrower appears, the higher the interest rate can be. Rate is definitely not the most important aspect of a mortgage, however, as many rock-bottom rates often come from no-frills mortgage products. In other words, even if a borrower qualifies for the lowest rate, they must often give up other features such as prepayments and porting privileges when opting for the lowest-rate product.

There are many other ways to save money over the mortgage term instead of taking the lowest rate, including rounding up mortgage payments or making lumpsum payments when bonuses, etc are received throughout the year. It’s important, however, not to exceed the allowable limit on annual extra payments with your lender.

Down Payment

The size of your down payment will determine whether you must also pay mortgage default insurance in addition to your regular mortgage payments. Mortgage default insurance is required any time you make a down payment that’s less than 20% of the property’s value.

Amortization Period

If you select a longer amortization period (the maximum is 25 years on mortgages with less than a 20% down payment and 30 years on mortgages with down payments of 20% or higher), your individual mortgage payment will be lower because they’re spread out over a longer period of time. Longer amortizations can come equipped with higher interest rates. You’ll also pay more interest the longer you take to pay off your mortgage.

Property Usage

If you’re buying a home that you personally intend to live in, this is considered your primary residence and is known as owner occupied. If you’re buying an investment property that you intend to rent to others, you’ll pay higher interest rates than on your primary residence. The logic behind this is that people will pay the mortgage on their primary residence before any rental properties. As such, lenders build added risk into the rates for rental properties.

Mortgage Type

The type of mortgage you select – such as variable vs fixed and open vs closed – will play a role in your mortgage rate. Each selection is a personal choice based on a number of factors.

When looking at open vs closed mortgages, for instance, it’s important to note that open mortgages are priced higher because of the flexibility they offer to pay the mortgage off at any time without facing a penalty.

And while variable mortgages have proven to be more cost effective over time than fixed mortgages, some people prefer the certainty of having the same payment throughout the mortgage term as is the case with fixed mortgages.

Your Credit Score

The ideal candidate for a traditional mortgage lender has a credit score that’s 680 and above. The higher the score is above 700 the better – with a maximum score of 900 possible – as borrowers will qualify for the lowest rates. There are options available for people with lower scores as well, but you can expect rates to be higher and terms to be shorter in these circumstances.

How nesto Works

We offer all the help of a mortgage broker, without the commission. Simply put, our salaried mortgage advisors are rewarded based on your satisfaction. We’re here to help you reach your goal and guide you through the complicated world of home financing. #yesyoucan #empowermentisthenewsexy

Every mortgage professional knows the market’s best rates every time they check their email. Only a few of them will give you that rate without making you work for it. nesto’s here to change the industry for this very reason. You always get the best rate upfront with nesto.