Mortgage myths: Debunking the top 5 misconceptions about mortgages in Canada

According to the Financial Consumer Agency of Canada (FCAC), more than a third (35.5%) of all Canadians currently have a mortgage. But while mortgages may be one of the most widespread forms of lending in the country, many Canadians still have a surprising number of misconceptions about how mortgages work, what the options are – and how to pick the right mortgage for them.

With close to 60% of all Canadians who have an outstanding mortgage expected to need to renew their mortgages before the end of the year, we thought we’d take a few moments to dispel some of those misconceptions, and debunk some of the most commonly-held Mortgage Myths we encounter as REALTORS®.

Myth #1: You always need a down payment of 20% to buy a home

While many homebuyers prefer to have a down payment of 20% or more to keep their monthly costs low, it’s possible to buy a home in Canada with as little as 5% down for homes that are valued at less than $500,000, or 10% down for homes with a purchase price of between $500,000 to $1.5 million.

Just remember that if you decide to purchase a property with less than 20% down, you’ll need to get mortgage loan insurance, which could add another 2.8% to 4.0% to the purchase price of your home.

Myth #2: You need to have perfect credit or be debt-free to qualify for a mortgage

Having a perfect credit score or being completely debt-free can be an advantage when it comes to qualifying for a mortgage. But they certainly aren’t mandatory requirements.

As with any other kind of loan, lenders will take a close look at your entire financial picture when deciding whether or not to approve you for a mortgage. This can include everything from your income and job history to your assets, personal debts, and the kind of property you’re looking to buy.

Many lenders also offer mortgages that are specifically intended for buyers whose credit isn’t as spotless as they might like, provided they’re willing to pay a higher interest rate or come up with a larger down payment upfront.

Myth #3: Your own bank will always give you the best rate

Given that you likely have a long history of working with them, your bank or credit union may well offer you the best mortgage rate or terms. But just because you have your chequing account, credit cards or investments with a particular bank doesn’t necessarily mean they’ll offer you the best mortgage.

Before you make your final decision on any mortgage matters, take some time to shop around, and try to get at least a few different competing offers.

Myth #4: Fixed-rate mortgages are always safer than a variable rate

Fixed-rate mortgages do provide greater stability, predictability and peace of mind than variable-rate loans. They can also offer significant cost savings if mortgage rates suddenly go up. But the choice between variable- and fixed-rate mortgages isn’t quite that straightforward.

For one thing, variable-rate mortgages tend to offer lower interest rates than fixed-rate loans, which can reduce the total amount of interest you’ll have to pay over the lifetime of your mortgage. Fixed-rate mortgages also often charge larger penalties if you need to break or refinance your mortgage.

In addition, variable-rate mortgages can save you even more if interest rates happen to drop. So if you aren’t sure which option is right for you, talk to your bank or mortgage broker, or ask your REALTOR® for advice.

Myth #5: The lowest rate is always the best choice

Lastly, while it’s true that the interest rate should be a big factor in choosing a mortgage, there are many other factors that need to be considered before you decide which mortgage is the best one for you.

For example, in addition to the interest rate, you may want to think about things like the mortgage terms, the amortization period, whether you want to be able to port your loan from one institution to another, and whether or not you want the flexibility to make more – or fewer – payments depending on how your individual needs and circumstances change.

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