Getting a mortgage in Canada means working through a defined sequence: work out what you can afford, gather your documents, get a pre-approval, apply to a lender, and clear the federal stress test before funds are advanced. Most delays and declines come down to paperwork and debt ratios rather than the property itself.
What a lender looks at
Lenders assess your income, your credit history, your down payment, the property and your existing debts. Salaried borrowers usually verify income with an employment letter, recent pay statements and a Canada Revenue Agency notice of assessment. Self-employed borrowers generally provide notices of assessment and business financial statements instead.
Debt service ratios do most of the arithmetic. Gross debt service (GDS) compares housing costs, including mortgage principal and interest, property taxes and heating, with gross income. Total debt service (TDS) adds other debt payments such as car loans, credit card minimums and student loans. Lenders set their own maximums, and the limits differ for insured and uninsured mortgages. The Financial Consumer Agency of Canada explains how these ratios work and why they affect the size of the mortgage you can qualify for.
Credit history affects both the rate you are offered and whether the mortgage can be insured. No single nationwide minimum credit score is set in law; each lender and each mortgage insurer publishes its own requirements, so a thin or damaged credit file narrows your options rather than disqualifying you automatically.
The stress test and the qualifying rate
The stress test is a federal rule that requires you to qualify at a rate higher than the one you will actually pay, so that a rise in rates later does not push the payment out of reach.
For uninsured mortgages, generally those with a down payment of 20 per cent or more, OSFI's Guideline B-20 requires federally regulated lenders to qualify the borrower at the greater of the contract rate plus two percentage points and a published minimum qualifying rate. For insured mortgages, the qualifying rules are set by the federal government and use a similar test. OSFI reviews the minimum qualifying rate at least once a year.
The effect is straightforward: the stress test reduces how much you can borrow compared with the contract rate alone. A borrower who can carry the payment at the contract rate may still fall short at the qualifying rate, which is why pre-approval amounts often look smaller than the figures used in advertising.
Not every lender is federally regulated. Banks and federally incorporated lenders fall under the OSFI guideline; many credit unions are provincially regulated and follow rules set by their own regulator, which may be similar but not identical. Ask which rules apply to your file.
Down payment rules and where the money can come from
Minimum down payment requirements for insured mortgages are set federally, and the required percentage rises as the purchase price rises. Check the current thresholds before you set a budget. A down payment of 20 per cent or more generally means mortgage loan insurance is not required; below that, the lender arranges insurance and the premium is usually added to the mortgage balance.
Down payment funds normally come from savings, the sale of an existing property, a gift from an immediate family member, or a withdrawal under the federal Home Buyers' Plan, which allows first-time buyers to withdraw from an RRSP on conditions set by the Canada Revenue Agency. For insured mortgages, lenders expect the down payment to come from your own resources or a documented gift rather than a loan, and they will ask for a history of the account holding the funds.
Budget for closing costs too: land transfer tax or fees where applicable, legal fees, an appraisal, title insurance and property tax adjustments. These sit on top of the down payment.
Documents to have ready
- Government-issued photo identification for each applicant.
- An employment letter and recent pay statements for salaried borrowers.
- Recent Canada Revenue Agency notices of assessment, plus business financial statements, for self-employed borrowers.
- Bank and investment statements showing the down payment, usually covering the last 90 days.
- A gift letter if part of the down payment is a gift.
- Details of other debts: car loans, credit cards, lines of credit, student loans and any co-signed obligations.
- Property details for a purchase: the accepted offer, condo documents if applicable, and the property tax assessment.
- For a refinance or renewal: the current mortgage statement and the most recent property tax bill.
Missing or inconsistent documents are the most common cause of delay. A complete file before you make an offer speeds up the lender's review and reduces the risk that a financing condition in your offer cannot be met in time.
Pre-approval: useful, not a guarantee
A pre-approval is a lender's indication of how much it might lend and at what rate, usually held for a set period. The lender generally verifies income, down payment and credit, but the approval stays conditional on an appraisal, a satisfactory property and no change in your finances.
Two things commonly void a pre-approval: a change in income or debts, and a property that does not appraise. Adding a car loan between pre-approval and closing is a frequent way to lose one. A pre-approval is not a promise to lend and does not lock a rate until the mortgage is funded.
Fixed or variable
A fixed rate locks the interest rate for the term, commonly five years, so payments are predictable. A variable rate moves with the lender's prime rate, which responds to the Bank of Canada's policy interest rate. A variable-rate mortgage with fixed payments can reach a trigger point where the payment no longer covers the interest, at which stage the lender will contact you about raising the payment or converting to fixed. Prepayment penalties also differ.
| Feature | Fixed rate | Variable rate |
|---|---|---|
| Payment | Same for the term | Moves with the lender's prime rate |
| Rate risk | Borne by the lender for the term | Borne by the borrower |
| Typical prepayment penalty | Three months' interest or an interest rate differential, whichever is greater | Usually three months' interest |
| Suits borrowers who | Need a predictable payment | Can absorb payment changes |
Mortgage broker or bank
Both routes end with a mortgage from a lender; the difference is who shops and how they are paid. A mortgage broker is licensed by a provincial regulator, works with a panel of lenders, and is typically paid by the lender whose mortgage you choose. A bank sells its own products through its own staff. Neither route guarantees approval or a better rate.
| Mortgage broker | Bank | |
|---|---|---|
| Lender access | Panel of lenders, including some that do not deal directly with the public | Its own product line |
| How it is paid | Commission from the lender whose mortgage you take | No broker commission; the rate and fees are set by the bank |
| Licensing | Licensed by a provincial regulator | Federally or provincially regulated, depending on the institution |
Provincial regulators keep public registries of licensed brokers and agents, so you can verify anyone who asks you to sign an application. Whoever you deal with must disclose the cost of borrowing before you commit.
Sources and further reading
- Financial Consumer Agency of Canada: mortgages and borrowing
- OSFI Guideline B-20: residential mortgage underwriting practices and procedures
- Canada Revenue Agency: Home Buyers' Plan
- Bank of Canada: policy interest rate
This article is general information, not financial, legal or tax advice, and Instalment.ca is a loan matching and comparison service, not a lender.