FINANCING GUIDE
02
Know the numbers
Know the numbers
Understanding Mortgage Costs and Fees in Canada
When buying a home, it’s important to understand the various costs that can come with securing a mortgage. While many fees are straightforward, some vary depending on your lender, loan type, and property value. Being informed helps you budget accurately and avoid surprises during the financing process.Credit Report
Before approving your mortgage, lenders will review your credit report to assess your borrowing history and financial reliability. With your consent, they’ll order this report from a Canadian credit bureau such as Equifax or TransUnion. You can also request your own credit report at any time — it typically costs under $30, and both agencies offer free annual online reports. Reviewing it beforehand ensures there are no errors and allows you to address any issues before applying for financing.Application or Processing Fee
Some lenders or mortgage brokers may charge an application or processing fee — typically ranging from $100 to $500 — to cover the administrative work involved in assessing your financial profile and verifying documents. Not all lenders charge this fee, and some may credit it back to you on closing. Always ask about this upfront so you understand any associated costs.Interest Rates and Annual Borrowing Costs
The interest rate on your mortgage determines how much you’ll pay to borrow money from the lender. In Canada, this is expressed as the annual interest rate, which may be fixed (stays the same for the term) or variable (fluctuates with the lender’s prime rate). For example, if your interest rate is 5.75%, that means you’ll pay approximately $5,750 per year in interest for every $100,000 borrowed, not including principal repayments. Your overall costs will depend on your rate, amortization period, and term length.Variable Rate Mortgages
With a variable rate mortgage, your interest rate changes when your lender’s prime rate moves up or down. Prime rates in Canada are influenced by the Bank of Canada’s overnight lending rate — which affects how much it costs lenders to borrow money. Variable rates can offer savings when interest rates are stable or declining, but payments may increase if rates rise.Appraisal Fee
Before approving a mortgage, most lenders require an appraisal of the property to confirm its market value. This protects both you and the lender by ensuring the purchase price is in line with comparable sales in the area. Appraisals are typically completed by certified, independent appraisers, and costs vary based on property type and location. In the GTA, appraisal fees usually range from $400 to $600.Miscellaneous Administrative Fees
There may be additional administrative costs involved in processing your mortgage, such as:- Title search and registration fees (handled by your real estate lawyer).
- Courier or document handling fees.
- Mortgage discharge or assignment fees if you change lenders in the future.
Prepayment Privileges and Penalties
Most Canadian mortgages include prepayment options — allowing you to pay off part of your loan early without penalty (for example, up to 10–20% of the original balance annually). However, if you exceed those limits or break your mortgage before the end of your term (by selling or refinancing), a prepayment penalty may apply. These penalties can vary depending on your lender and mortgage type:- Variable-rate mortgages: Usually charge three months’ interest.
- Fixed-rate mortgages: Often use the Interest Rate Differential (IRD) formula, which can be higher.