Key Takeaways:
Your credit score can affect the mortgage rate lenders offer — higher scores can mean lower rates
Below roughly 600–650, mortgage approval can be a challenge, though specialist lenders exist
Minimum down payments in Canada are 5% under $500,000 and 10% on the portion above
Budget for mortgage loan insurance and closing costs like land transfer taxes and legal fees
Home sweet home: Buying can be trying
Your new home purchase is a milestone in your journey toward security, stability and independence. Financing a home may be the most important investment you make — and TransUnion can help you avoid unwanted setbacks as you move to close the deal.
How does my credit score affect my mortgage rate and eligibility?
Your credit score can directly affect the mortgage interest rate a lender offers. Higher credit scores can lower the interest rate, while lower scores may cause it to rise.
I have a good score. What else can lower my rate?
Choose a shorter amortization period if you can handle a higher monthly payment. A 15-year term instead of a 25-year loan will not only reduce your interest rate, it will cut the total interest you pay over the term of the mortgage. Short-term and variable-rate mortgages are less risky for lenders, so they come with lower interest rates. But remember: Short-term and variable-rate mortgages are riskier if interest rates rise. That’s why many people want the security of a locked-in, longer-term interest rate.
Can I get a mortgage with a low credit score?
Typically, if your credit score is less than 600 (or even 650 in some circumstances), getting approved for a mortgage you can afford may be a challenge. Each lender has its own formula for determining the level of risk it will assume, so there’s no one-size-fits-all answer. Some companies specialize in mortgages for purchasers with weak credit histories; they may charge a higher interest rate or insist on a larger down payment. Speak with a range of potential lenders and choose the one that best meets your specific needs.
What other mortgage-related costs do I need to consider?
Down payment rules
In Canada, federal mortgage rules that came into effect on February 15, 2016, require larger down payments for higher-priced properties. For houses under $500,000, the minimum down payment is 5%. For higher-priced homes, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion.
Mortgage loan insurance (MLI)
Lenders require mortgage loan insurance when your down payment is less than 20% of the purchase price. MLI protects lenders against mortgage default and enables you to purchase a home with a minimum down payment starting at 5% — with interest rates comparable to those with a 20% down payment. Your premium is a percentage of the mortgage amount, influenced by factors like whether you’ll occupy or rent the property and the size of your down payment. The more you borrow, the higher the premium — but usually the cost is offset by the amount you save in your mortgage interest rate.
Other closing costs
Once you’ve settled on a down payment, take stock of your closing costs. These vary by city and province and can include land transfer taxes, a realtor’s commission, HST and lawyer’s fees.
