How Mortgages Work in Canada: A First-Time Homebuyer’s Guide

How Mortgages Work in Canada: A First-Time Homebuyer’s Guide

Buying your first home in Canada? Congratulations — this is a major milestone! But if you're like most first-time buyers, navigating mortgages, interest rates, and approvals can feel overwhelming. Don’t worry — we’re here to break it all down.

What Is a Mortgage?

A mortgage is a loan you take out to buy a home. It’s secured by the property itself, meaning the lender has the right to take back the home if you don’t keep up with payments.

How Much Can You Borrow?

Your mortgage approval depends on several factors:

• Income: Lenders assess your ability to afford monthly payments.

• Credit Score: A higher score means better rates and more options.

• Down Payment: The minimum down payment in Canada is:

  • 5% for homes under $500,000

  • 10% for any portion above $500,000 up to $999,999

  • 20% for homes $1 million and above

You’ll also need to pass the mortgage stress test, which proves you can afford your payments even if interest rates rise.

Fixed vs. Variable Rates

• Fixed Rate: Your rate and payments stay the same for the term (e.g. 5 years).

• Variable Rate: Your rate may fluctuate with the market, but your initial rate is often lower.

Talk to a broker to help decide which one matches your lifestyle and risk tolerance.

Mortgage Term vs. Amortization

• Term: The length of your contract with the lender (usually 1–5 years).

• Amortization: The full length of time it takes to pay off the loan (usually 25 years).

At the end of each term, you’ll renew your mortgage — possibly with a new rate.

What Are Closing Costs?

Aside from your down payment, you’ll need to budget for:

• Land transfer tax (varies by province)

• Legal fees

• Home inspection

• Appraisal fees

• Mortgage default insurance (if your down payment is under 20%)

These can add up to 1.5%–4% of your home’s purchase price.

Government Incentives for First-Time Buyers

To make buying easier, the Canadian government offers:

• First-Time Home Buyers Incentive: A shared equity loan that helps reduce your mortgage.

• Home Buyers’ Plan (HBP): Withdraw up to $35,000 from your RRSP tax-free for a down payment.

• Land Transfer Tax Rebates in some provinces (like Ontario and B.C.)

Should You Work With a Mortgage Broker?

Yes — especially if you’re new to the process. Mortgage brokers:

• Compare rates from multiple lenders

• Help you access exclusive deals

• Guide you through paperwork and approvals

• Advocate for you, not the bank

Final Thoughts: You Don’t Have to Do It Alone

The mortgage process can feel complex, but with the right guidance, it's completely manageable. At Mortgages of Canada, we help first-time homebuyers understand their options, get pre-approved fast, and find the best mortgage to fit their future.

Ready to take the next step?

✅ Get pre-approved today💬 Book a free consultation📚