One explanation your rate might be higher is the down payment size. This is understandably counter-intuitive for most clients. You would believe that being a good money saver would show you are financially responsible, and that you could be rewarded with a lower rate. The reason for this is default insurance.

Canadian Banks

By federal regulation, the big banks in Canada need to hold around $1500 in the capital for each $100,000 they lend in mortgages. The smaller the down payment, the more capital they hold to stay solvent, unless if the Government guarantees the mortgage. If the mortgage is guaranteed, they need to hold essentially no capital. All home loans with under 20% down should be protected. Subsequently, banks charge higher rates on mortgages with more than 20% down to balance the additional capital requirement.

Mortgage Companies

Mortgage Companies do not have similar capital as Big Banks, so their structure is somewhat unique. Without the required capital, any mortgage that a mortgage company finances should be supported by the Canadian Government with default insurance. In any case, this doesn’t imply that mortgage companies can’t do mortgage for customers with over 20% equity in their homes. It simply implies that when they do, they should now bear the expense of that default protection behind the scenes. Since the lender now has this added cost, the offered rates will be increased to cover the offset.

This insurance cost isn’t something similar for all mortgages. The cost of the insurance diminishes as there is greater value in the property. Which means, for the individuals who have a mortgage, between 70%-80% loan to value (20%-30% down payment) has the greatest cost for the lender, though mortgages at 0-60% have the least. That cost is generally tiered and incorporates factors other than just the loan to value, for example, credit score, property location, mortgage size and amortization.

If you are looking to refinance or purchase a home over the next few months, contact us today at 877-296-2696 or email us at