Buying your first home is a major financial step. Understanding the mortgage process helps you make clear, confident decisions. This guide explains each part of the Canadian mortgage process in simple, direct language. It is written for first-time buyers who need clear steps and practical tips.
1. Know What a Mortgage Is
A mortgage is a loan you use to buy a home. You borrow money from a lender, such as a bank or credit union. You repay the loan over time, with interest. Most mortgages in Canada are repaid over 25 years. This is called the amortization period.
2. Understand the Role of a Mortgage Broker or Lender
You can get a mortgage directly from a lender or through a mortgage broker. A lender gives you the loan. A broker helps you compare offers from multiple lenders. Brokers do not charge you. They receive a commission from the lender. Working with a broker can save time and help you find a better rate.
3. Check Your Credit Score
Your credit score affects your mortgage approval. A higher score means better rates and more options. In Canada, scores range from 300 to 900. Aim for a score above 680. You can check your credit score for free through providers like Equifax or TransUnion.
4. Get Pre-Approved for a Mortgage
A mortgage pre-approval shows how much a lender is willing to lend. It also locks in an interest rate for 90 to 120 days. Pre-approval is based on your income, debts, and credit score. This step helps you understand your price range before you shop for homes.
Documents you may need:
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Proof of income
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Recent pay stubs
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Tax returns
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Bank statements
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Proof of down payment
5. Know Your Budget
Do not spend the full amount offered in your pre-approval. Make sure you can afford monthly payments along with property taxes, utilities, insurance, and maintenance. Use online mortgage calculators to test different scenarios.
6. Understand Mortgage Types
Fixed-Rate Mortgage
The interest rate stays the same for the full term. Payments do not change. It offers payment stability.
Variable-Rate Mortgage
The interest rate changes with the lender’s prime rate. Payments may change. It often starts with a lower rate.
Open Mortgage
You can pay off the loan early without penalties. It has higher rates and is best if you plan to sell or pay off soon.
Closed Mortgage
You must follow a fixed payment plan. Early payments may trigger fees. It has lower rates and suits long-term plans.
7. Know Mortgage Terms and Amortization
The term is the length of your mortgage contract. Most buyers choose five years. The amortization period is the total length of time you will take to pay off the loan, usually 25 years.
Shorter terms offer more flexibility. Longer terms offer more stability. Choose based on your goals.
8. Understand Down Payment Requirements
In Canada, the down payment depends on the purchase price:
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Under $500,000: minimum 5%
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$500,000 to $999,999: 5% on the first $500,000, 10% on the rest
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$1 million and over: minimum 20%
If your down payment is under 20%, you must pay mortgage insurance through CMHC, Sagen, or Canada Guaranty.
9. Use First-Time Buyer Programs
Canada offers several programs for first-time homebuyers.
First-Time Home Buyer Incentive
The government offers 5% or 10% of the home’s price as a shared equity loan. You repay the amount when you sell or after 25 years.
Home Buyers’ Plan (HBP)
You can withdraw up to $60,000 from your RRSP to buy your first home. You must repay it over 15 years.
GST/HST New Housing Rebate
You may get a rebate on part of the GST or HST paid on a new or heavily renovated home.
10. Budget for Closing Costs
Closing costs are extra fees you pay when buying a home. They include:
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Land transfer tax
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Legal fees
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Title insurance
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Home inspection
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Property tax adjustments
Plan for 1.5% to 4% of the home’s purchase price to cover these costs.
11. Review the Mortgage Contract Carefully
Your mortgage contract outlines the terms of your loan. Review it with care. Key parts to check:
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Interest rate
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Term length
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Payment schedule
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Prepayment privileges
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Penalty fees for early payout
Ask questions if anything is unclear.
12. Understand Prepayment Options
Some lenders allow you to pay extra without penalty. This helps you pay off the mortgage faster. Common options include:
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Extra lump-sum payments (e.g., 10-15% of the mortgage each year)
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Increasing your regular payment (e.g., by 10-15%)
These details will be in your mortgage agreement.
13. Know the Penalties for Breaking a Mortgage
If you sell your home or refinance before your term ends, you may pay a penalty. For fixed-rate mortgages, the penalty is usually the greater of three months’ interest or the interest rate differential (IRD). For variable-rate mortgages, the penalty is usually three months’ interest.
14. Porting Your Mortgage
Some lenders let you move your current mortgage to a new home. This is called “porting.” It avoids early payout penalties. Ask your lender if this option is available.
15. Work With a Real Estate Agent
A licensed agent can help you find homes, make offers, and guide you through the paperwork. Choose someone who knows your area well and listens to your needs. Agents are paid by the seller, so buyers do not usually pay fees.
16. Final Mortgage Approval
After you make an offer on a home, your lender will review the details. They may order an appraisal. If everything checks out, you will receive final approval. Do not make big financial changes during this time. Avoid new loans, credit card spending, or job changes.
17. Meet With a Lawyer or Notary
You must meet with a real estate lawyer or notary before closing day. They review documents, register the mortgage, and handle the transfer of funds. Your lawyer will explain what to expect on closing day.
18. Prepare for Closing Day
On closing day, your lender sends the mortgage funds to your lawyer. The lawyer pays the seller and handles all legal steps. You receive your keys once the deal is complete.
Final Thoughts
Buying your first home in Canada is a clear process if you break it down step by step. Start with a strong credit score. Get pre-approved. Know your budget. Understand the terms of your mortgage. Use first-time buyer programs to save money. Ask questions and work with professionals. These actions help you move forward with clarity and confidence.