Understanding Mortgage Rates in 2026
Mortgage rates significantly impact how much home you can afford and your monthly payments. In 2026, Toronto buyers face a more stable rate environment than recent years, but navigating options still requires understanding. This guide helps you secure the best financing for your situation.
Current Rate Environment
Where Rates Stand in 2026
The Bank of Canada has maintained its overnight rate, providing stability after years of volatility. Current typical rates:
- 5-Year Fixed: 4.49% - 5.29%
- 5-Year Variable: 4.85% - 5.45% (Prime - 0.35% to Prime + 0.25%)
- 3-Year Fixed: 4.69% - 5.19%
- 1-Year Fixed: 5.19% - 5.79%
Note: Rates vary by lender, down payment size, and qualification factors. Always get personalized quotes.
Fixed vs. Variable: Making the Right Choice
Fixed-Rate Mortgages
Your rate and payment remain constant throughout the term.
Advantages:
- Payment predictability for budgeting
- Protection from rate increases
- Peace of mind in uncertain times
Disadvantages:
- Typically higher initial rate than variable
- Significant penalty for breaking early (IRD calculation)
- Miss out if rates decline
Best for: Risk-averse buyers, those on tight budgets, uncertain economic times
Variable-Rate Mortgages
Your rate fluctuates with the Bank of Canada's prime rate.
Advantages:
- Historically lower cost over time
- Lower penalties if you break (typically 3 months interest)
- Flexibility for future rate declines
Disadvantages:
- Payment uncertainty
- Risk of significant increases
- Stress during rate-hike cycles
Best for: Risk-tolerant buyers, those who may move within 5 years, believers in eventual rate cuts
The Mortgage Stress Test
All buyers must qualify at the higher of:
- Your contract rate + 2%, OR
- 5.25% (the floor rate)
This means even if you secure a 4.5% rate, you must prove you can afford payments at 6.5%. The stress test significantly impacts purchasing power:
Example: With $100,000 household income:
- Without stress test: Could afford ~$650,000
- With stress test: Can afford ~$500,000
How to Get the Best Rate
1. Improve Your Credit Score
Lenders offer best rates to borrowers with 720+ credit scores:
- Pay bills on time (35% of score)
- Keep credit utilization under 30%
- Don't apply for new credit before your mortgage
- Check your report for errors
2. Save a Larger Down Payment
- 20%+ down eliminates CMHC insurance ($)
- Larger down payments often qualify for better rates
- Lower loan-to-value = lower lender risk
3. Work with a Mortgage Broker
Brokers access dozens of lenders and can:
- Compare rates across major banks and alternative lenders
- Negotiate on your behalf
- Find solutions for unique situations
- Save you time and potentially thousands
4. Get Pre-Approved
Pre-approval provides:
- Rate hold (typically 90-120 days)
- Clear budget understanding
- Credibility with sellers
- Faster closing when you find a home
Mortgage Term Options
5-Year Term (Most Popular)
The standard choice for most buyers. Balance of rate security and flexibility. Renewal every 5 years.
3-Year Term
Good if you expect rates to drop or plan to sell within 5 years. Slightly higher rate than 5-year.
1-Year Term
Maximum flexibility but highest rates. Useful in declining rate environments.
7 or 10-Year Terms
Maximum rate security but highest fixed rates and largest break penalties. Rare in Canada.
Additional Costs to Consider
CMHC Insurance (if less than 20% down)
- 5-9.99% down: 4.00% of mortgage
- 10-14.99% down: 3.10% of mortgage
- 15-19.99% down: 2.80% of mortgage
Example: On a $600,000 home with 10% down, insurance adds $16,740 to your mortgage.
Other Closing Costs
- Legal fees: $1,500-$2,500
- Land transfer tax: 1-2.5% of purchase price
- Title insurance: $300-$500
- Home inspection: $400-$600
- Appraisal (if required): $300-$500
Working with Mortgage Professionals
The right mortgage professional provides:
- Access to competitive rates
- Guidance through the application process
- Advice on optimal structure
- Ongoing relationship for renewals and refinancing
We work with trusted mortgage brokers who specialize in Toronto buyers. Contact us for introductions and to start your pre-approval process.
