How mortgages work
in Ontario.
Explained plainly.
Most people spend more time researching a car purchase than understanding the mortgage they'll carry for 25 years. That's not a criticism — nobody teaches this stuff, and lenders don't always explain it in plain language.
This page covers the fundamentals: the types of lenders, how rates work, what your down payment actually means, and what it costs to close. High level, no jargon, so you can ask better questions and make better decisions.
The things worth understanding
before you sign anything.
None of this is complicated once someone explains it properly. Here's what you need to know about how mortgages actually work in Ontario.
A lenders, B lenders — what's the difference?
An A lender is a traditional bank or credit union — TD, RBC, Scotiabank, a local credit union. They offer the best rates, but they have strict qualification criteria around income, credit history, and debt ratios. If you qualify, this is where you want to be.
A B lender (also called alternative lenders) operates outside the traditional banking system. They serve borrowers who don't meet A lender requirements — self-employed buyers with irregular income, people with past credit issues, or those with higher debt loads. B lenders approve more people but charge higher rates and fees to offset their risk.
A mortgage broker works with both types and can match you to the right lender based on your situation. Going directly to your bank gives you one option. A broker gives you many.
Fixed vs variable — which is right for you?
A fixed rate locks in your interest rate for the term of your mortgage — typically 1 to 5 years. Your payment doesn't change regardless of what the Bank of Canada does with its policy rate. Predictable, stable, easy to budget around.
A variable rate moves with the prime rate. When the Bank of Canada raises rates, your rate (and often your payment) goes up. When they cut, it comes down. Variable rates have historically been lower than fixed over the long run — but they come with uncertainty, and not everyone is comfortable with that.
| Fixed Rate | Variable Rate | |
|---|---|---|
| Payment | Stays the same | Can change with prime rate |
| Rate level | Usually higher at signing | Usually lower at signing |
| Best for | Predictability, tight budgets | Flexibility, rate tolerance |
| Penalty to break | Often higher (IRD calculation) | Typically 3 months interest |
Amortization period vs mortgage term — they're not the same thing.
Your amortization period is the total length of time it will take to pay off your mortgage — usually 25 years in Canada, though you can go up to 30 years if your down payment is 20% or more. A longer amortization means lower monthly payments but more interest paid over time.
Your mortgage term is how long your current rate and conditions are locked in — most commonly 5 years. At the end of each term, you renew at whatever rates are available at that time. You're not locked into your lender at renewal — shopping around is almost always worth it.
What you need upfront —
and what comes after.
Down payments, deposits, and closing costs are three different things. Here's what each one means and what to budget for.
Down payments, CMHC insurance, and what 20% actually means.
Your down payment is the portion of the purchase price you pay upfront — the rest is financed through your mortgage. In Canada, the minimum down payment is 5% on homes up to $500,000, scaling to 10% on the portion between $500K and $999,999. Homes over $1 million require 20% minimum.
If your down payment is less than 20%, your mortgage is considered high-ratio and requires mortgage default insurance through CMHC, Sagen, or Canada Guaranty. The premium ranges from 2.8% to 4% of the mortgage amount and is added to your loan — you don't pay it upfront. It protects the lender, not you — but it's what makes low down payment homeownership possible in Canada.
Putting 20% or more down avoids the insurance premium and reduces your overall borrowing cost. It also opens up 30-year amortization options.
Deposit vs down payment — they're not the same thing.
A deposit is the sum of money you submit with your offer to show the seller you're serious. In Ontario, it's typically 5% of the purchase price and is due within 24 hours of your offer being accepted. It's held in trust by the listing brokerage until closing.
Your deposit becomes part of your down payment — it's not an additional cost on top. So if you're putting 10% down and your deposit was 5%, you pay the other 5% at closing. The deposit is just the part that moves first.
If you walk away from a firm deal without conditions, you lose your deposit. This is why conditions in an offer — financing and inspection — protect you. Always understand what you're signing before you go firm.
Porting — taking your current rate to your next home.
If you already own a home and have a mortgage with a rate you'd like to keep, porting lets you transfer that mortgage to your new property without breaking your current term. This avoids the prepayment penalty that comes with breaking a fixed-rate mortgage mid-term.
Not all mortgages are portable, and those that are have conditions — your new property has to qualify, and you typically have a limited window to complete the port. If you're buying and selling at the same time, this is a conversation worth having with your mortgage broker early.
What to budget for beyond your down payment.
Closing costs are the expenses you pay on closing day on top of your down payment. In Ontario, budget 1.5–4% of the purchase price. Your lawyer will provide a precise statement before closing — there are no surprises if you plan for these upfront.
| Cost | Typical Range |
|---|---|
| Ontario land transfer tax
First-time buyers get a rebate up to $4,000
|
0.5–2.5% of purchase price |
| Legal fees + disbursements | $1,500 – $2,500 |
| Title insurance | $200 – $400 |
| Home inspection | $400 – $600 |
| Adjustments (property tax, utilities) | Varies |
| Moving costs | $800 – $3,000+ |
Run your numbers
before you start searching.
Knowing your estimated monthly payment before you book a showing makes every conversation sharper. Adjust the purchase price, down payment, rate, and amortization to see how the numbers change.
MORTGAGE CALCULATOR
Mortgage questions,
answered straight.
These are the questions buyers ask most — usually after they've started looking at homes and realised they don't fully understand what they can afford. Eric is happy to walk through any of these in person.
Talk to Eric directly →Know your numbers.
Then find your home.
Understanding your mortgage is the foundation everything else is built on. Once you know what you can comfortably afford, the search gets a lot clearer. Eric can help you connect the financing picture to the right neighbourhood and the right home.