The mortgage choices Canadians make in 2025 will depend on where mortgage rates are going. These choices are important because they can save homeowners thousands of dollars over time.
In this article, we’ll break things down in a simple way. We’ll look at where mortgage rates might be headed by checking what’s happening in the economy, using what we’ve learned from years of working with mortgages.
If you’re wondering things like what is a high ratio mortgage, or how interest rates could change your monthly payments, you’re in the right place. Let’s make it easy to understand so you can make the best choice for your future.
A high-ratio mortgage in Canada means you’re buying a home with less than a 20% down payment.
The amount of minimum down payment in Canada depends on the home costs.
Here’s the breakdown:
Example:
If you’re buying a home for $650,000:
If your down payment is less than 20%, you must get mortgage default insurance. This insurance helps protect the lender (the bank), not you, in case you can’t make your payments.
Also, if the home costs more than $1.5 million, you won’t be allowed to get this insurance. So, you’ll need to come up with a bigger down payment.
When you’re buying a home in Canada, one important thing to know is the loan-to-value ratio. This just means how much money you’re borrowing compared to how much the home costs. It helps decide if you’ll need a high-ratio mortgage. If you’re also considering using your property’s value for other needs later, like renovations or debt consolidation, you might want to look into a Home Equity Line of Credit Ontario, which is based on this same ratio.
You want to buy a home that costs $400,000.
If you only have $20,000 saved for a down payment, you’ll need a mortgage for the rest, which is $380,000.
Now, let’s do the math to find the loan-to-value ratio:
$380,000 ÷ $400,000 = 0.95 or 95%
That means you’re borrowing 95% of the home’s value. Since that’s more than 80%, this is called a high-ratio mortgage.
In Canada, if your loan-to-value ratio is more than 80%, you’ll have to follow mortgage insurance rules in Canada. This means you must pay for mortgage insurance. It protects the lender in case you can’t pay back the loan.
So, if you’re asking, what is a high ratio mortgage, it’s when you borrow more than 80% of the home’s price and your down payment is less than 20%.
Now, let’s say you saved more money and put down $100,000 on the same $400,000 home. That leaves you with a mortgage of $300,000.
Let’s check your new loan-to-value ratio:
$300,000 ÷ $400,000 = 0.75 or 75%
This time, you’re only borrowing 75% of the home’s value, which means your down payment is 25%. Since that’s more than 20%, your mortgage is not high-rated and you don’t need to pay for mortgage insurance.
If you’re thinking about buying a home or renewing your mortgage soon, it’s important to understand how mortgage rates are changing. Let’s break it down in a simple way:
In the past 15 years, mortgage interest rates have been pretty low. But things are changing now. Because the global economy is shifting, we might start seeing higher average mortgage rates in the future.
On June 4, there’s a 75% chance the Bank of Canada will keep its overnight rate at 2.75%. This means mortgage rates might stay around the same for now.
Looking ahead to 2025 and 2026, the Bank of Canada is expected to lower its overnight rate by 0.50%. That could help bring mortgage rates down a little in the future.
As of June 2025, here are the Big Bank predictions for mortgage rates in Canada:
| Bank | June Decision | Summer 2025 | Fall 2025 | Winter 2025 |
| TD | 2.50% | 2.50% | 2.25% | 2.25% |
| RBC | 2.75% | 2.50% | 2.25% | 2.25% |
| Scotia | 2.75% | 2.75% | 2.75% | 2.50% |
| CIBS | 2.75% | 2.25% | 2.25% | 2.25% |
| BMO | 2.75% | 2.50% | 2.25% | 2.00% |
| National | 2.75% | 2.25% | 2.25% | 2.00% |
Buying a home in Canada comes with a lot of rules. If you’re planning to buy a house with a small down payment, you’ll likely need a high-ratio mortgage. Here’s more about it:
With a regular (or conventional) mortgage, some people can stretch out their payments for more than 25 years. This helps lower their monthly bills. But high-ratio mortgages don’t let you do that because your maximum amortization is 25 years.
There are only two exceptions:
Everyone else has to stick to the 25-year limit.
Here’s where it gets more expensive. If you’re wondering how much is CMHC insurance, the answer depends on your down payment. It usually adds between 0.6% and 4.0% to your total loan. Even if your interest rate is a little lower, the cost of CMHC mortgage insurance makes your mortgage more expensive overall.
Besides saving for a down payment, you’ll also need to pass the mortgage stress test. This test shows if you can still afford your home if interest rates go up. Lenders use it to make sure you’re not borrowing too much.
To pass, you must prove you can pay the higher of:
Your bank or lender checks two things:
Let’s say you want to buy a home and make a 5% down payment on a $500,000 house. That means your mortgage would be around $483,999. You’d also need to cover:
To qualify for this under the mortgage stress test, your gross income needs to be at least $142,000.
But if you put down 20% instead, and your mortgage is only $399,999, you’d need around $120,000 in gross income.
Here’s another important rule: CMHC insurance is only for homes that are your main home. You must live there all year long, and it has to be your main residence. That means:
Buying your first home can feel really hard, but a high-ratio mortgage can help make it easier. You might only need a 5% down payment to get started. That sounds exciting, especially for first-time buyers! But it’s also important to think about the costs over time. If you make a smart budget and plan your money well, a high-ratio mortgage is an excellent way to start building your future and feeling secure.
