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You've moved to Canada and feel excited to call it home.
If buying a home is one of your goals as a newcomer to Canada, you probably have a lot of questions about the homebuying process: How do mortgages work in Canada? What's your credit score, and how high should it be to buy a house in Canada? Who should you talk to about getting a loan? Will it be hard to buy a home in Canada?
We break down everything you need to know about how mortgages work, the different kinds of mortgages available, the credit score you'll need and how to apply for a mortgage.
Down payments in Canada
You need a down payment to buy a home in Canada. A down payment is the amount of money that you pay up front to reduce the amount of money you must borrow through a mortgage loan.
The amount of down payment you need depends on the home's purchase price:
Less than $500,000
Down payment required:
5% If you have a down payment of less than 20%, you can still get a mortgage but you'll need to pay for mortgage default insurance.*
$500,000 to $999,999
Down payment required:
5% on the first $500,000 10% of the amount over $500,000*
More than $1 million
Down payment required:
20%
Mortgage lenders will either bill you directly for default insurance or add the cost onto your mortgage balance.
What is the minimum credit score to buy a house in Canada?
In Canada, credit scores range from 300 to 900. The higher your credit score, the more options lenders can offer in terms of mortgage products and interest rates. If you’re asking, “Can I buy a house with a 648 credit score”, the short answer is probably not. You’ll need at least a minimum credit score of 680.1
If your credit score is too low to qualify for a mortgage, there are strategies for how to improve your credit score. One option, especially if you're a newcomer wondering how to increase your credit score, is to start building a credit history by getting a credit card and making all your payments on time. Scotiabank offers credit cards to newcomers with little or no credit history as part of the StartRight program.2
How to qualify for the best mortgage rates
Your mortgage rate influences your monthly payment and how much interest you'll pay over the life of the loan, which makes it important to lock in the best rate possible.
Your credit score is one of the key factors in determining the interest rate on your loan. Before applying for a mortgage, work on improving your credit score; a higher score may help lower your interest rate — and even a difference of a few percentage points in your interest rate can make a significant difference over the life of your loan. A lower interest rate could also offer you more purchasing power to help you buy the home of your dreams. If you're a Scotiabank customer, you can easily get your free credit score from TransUnion3 on the Scotia mobile app.
Fixed rate mortgages versus variable rate mortgages
In Canada, there are two main types of rates on mortgage loans: fixed and variable.
Fixed rate mortgages
Pros
The interest rate is locked in for the entire mortgage term. Monthly payments remain the same for the entire mortgage term.
Cons
Interest rates are often initially higher than a variable rate mortgage.
Variable rate mortgages
Pros
Lower upfront interest rates.
Cons
The interest rate fluctuates over the mortgage term. Monthly payments could go up (or down) over the term of your loan.
What are mortgage terms?
In Canada, you can choose a closed or open mortgage term. With a closed term, prepayment charges apply if you decide to repay the mortgage before the end of the term and carry a higher interest rate. In contrast, an open term mortgage allows you to repay the mortgage at any time with no prepayment penalties.
After choosing between an open or closed term, you must decide on the length of the term.
When you choose a mortgage term, you're locked into the agreement over that term. Once the term ends, you can renegotiate the rate with the bank or to move to another lender.
Terms range from two years, three years, five years or more, depending on the mortgage lender. A five-year fixed rate mortgage is the most popular mortgage term in Canada.4
Amortization period
The amortization period and the loan term are typically different in Canada. An amortization period is the period in which it will take you to pay off your complete mortgage debt (including interest), based on regular payments assuming a certain interest rate.
Common amortization periods in Canada are 10, 20 and 25 years. The longer the amortization period, the lower your monthly payments, but you'll also pay more interest on the loan because the repayment period is longer. Your monthly payments will be higher if you choose a shorter amortization period, but you'll pay less interest on the loan because it's repaid sooner.
What do you need to apply for a mortgage?
You'll need some basic information to complete a mortgage application, including:
- Identification
- Proof of employment
- Copies of your most recent tax returns
- Details about existing debt
- A list of assets
It's a good idea to get pre-approved for a mortgage before starting to search for a home so you're certain you'll qualify for the loan. Contact a home financing advisor to start the application process.
What are the steps to getting a mortgage?
A Scotiabank home financing advisor can also help you compare different types of mortgages and rates, and monthly payment options. It's also a good idea to apply for a pre-approval to ensure that you're shopping for homes in your budget.
Optional mortgage insurance products
Many lenders offer optional creditor insurance protection; this coverage can help to keep up with mortgage payments or pay off the balance of the loan if certain unexpected life events, such as disability or critical illness occur.
Closing costs, taxes and other costs
In addition to budgeting for a down payment, you'll also need to budget for other expenses, such as GST or HST on new home purchases, land transfer taxes and property taxes. If you aren't a permanent resident or provincial nominee in Canada, you may also need to pay a foreign buyer tax.
Other fees associated with buying a home include closing costs that cover legal fees, inspections and other costs. Remember that condos also often charge monthly management or maintenance fees.
Get help from trustworthy experts
When you're ready to apply for a mortgage, be sure to work with a reputable lender. As a newcomer to Canada, you may encounter scammers trying to take advantage of your lack of knowledge about the homebuying process.
Contact a mortgage specialist associated with an established company — and never share your Social Insurance Number with someone who may not be legitimate. At Scotiabank, mobile home financing advisors will meet you at your location of convenience to discuss your borrowing options.
Look for a lender that's eager to educate you about the homebuying process and wants to create a long-term relationship. Your lender is there to be a trusted advisor.
Research mortgage options, like the Scotiabank StartRight mortgage program for permanent residents and temporary residents, then book an appointment with a home financing advisor to find out the latest information on the best mortgage options for you.
