Ten Things to Know About Prime & Your Mortgage
Katherine Martin • August 30, 2017
- Fixed-rate mortgage holders are not affected by Bank of Canada rate changes during their current term. Only those in either adjustable-rate or variable-rate mortgages need read on.
- On July 12 lenders increased variable-rate borrowing costs by 0.25% to match the Bank of Canada increase of the same amount on the same day.
- There are three more scheduled Bank of Canada meetings this year, and there remains doubt about any further increases this year. Few expect anything more than a 0.25% further increase.
- This was the first increase to Prime in nearly seven years, and it follows two 0.25% reductions in 2015.
- A 0.25% rate increase equals a payment increase of $13 per month per $100,000 of outstanding mortgage balance for those in an adjustable-rate mortgage. That means a $300,000 mortgage balance will see payments rise by $39 per month.
- Not all payments increase. Several lenders differentiate from an adjustable-rate product by offering what is called a ‘variable-rate’ mortgage and their clients will not have any payment change at all. Instead, the life of the mortgage is extended slightly. A letter in the mail from your lender should be arriving to confirm which camp you are in.
- There is no penalty or fee to convert to a fixed rate. Whether in an adjustable-rate mortgage or a variable-rate mortgage, you have the option of locking into a fixed-rate at any time without cost. The length of the term offered varies according to policy and remaining time to maturity, with some lenders allowing conversion to a three-year fixed from day one, but most ensuring they have you under contract for the full original term.
- Locking in can be very costly. The prepayment penalties differ significantly between variable- and fixed-rate products. Be careful about locking in. Aside from immediately increasing your payment even further, you stand to increase your potential prepayment penalty by up to 900%. Few think they will trigger a penalty, yet more than half of borrowers actually do.
- No surprises. Mortgage lenders failed to give us the full 0.25% decreases in 2015, instead only reducing rates by 0.15% both times. Counting on our short memories and lack of uproar, lenders chose to increase by the full 0.25% on July 12, rather than doing what would have been fair and only increasing 0.15%.
- Future increases will depend largely on consistent economic good news. This is what drives interest-rate increases.
Stay tuned for next month’s newsletter as we weigh the likelihood of another 0.25% increase at the September Bank of Canada meeting.
This article was originally published in the Dominion Lending Centres August 2017 newsletter.
Katherine Martin
Origin Mortgages
Phone: 1-604-454-0843
Email: kmartin@planmymortgage.ca
Fax: 1-604-454-0842
RECENT POSTS
Owning a vacation home or an investment rental property is a dream for many Canadians. Whether it’s a cottage on the lake for family getaways or a rental unit to generate extra income, real estate can be both a lifestyle choice and a smart financial move. But before you dive in, it’s important to know what lenders look for when financing these types of properties. 1. Down Payment Requirements The biggest difference between buying a primary residence and a vacation or rental property is the down payment. Vacation property (owner-occupied, seasonal, or secondary home): Typically requires at least 5–10% down, depending on the lender and whether the property is winterized and accessible year-round. Rental property: Usually requires a minimum of 20% down. This is because rental income can fluctuate, and lenders want extra security before approving financing. 2. Property Type & Location Not all properties qualify for traditional mortgage financing. Lenders consider: Accessibility : Is the property accessible year-round (roads maintained, utilities available)? Condition : Seasonal or non-winterized cottages may not meet standard lending criteria. Zoning & Use : If it’s a rental, lenders want to ensure it complies with municipal bylaws and zoning regulations. Properties that fall outside these norms may require financing through alternative lenders, often with higher rates but more flexibility. 3. Rental Income Considerations If you’re buying a property with the intent to rent it out, lenders may factor the rental income into your mortgage application. Long-term rentals : Lenders typically accept 50–80% of the expected rental income when calculating your debt-service ratios. Short-term rentals (Airbnb, VRBO, etc.) : Many traditional lenders are cautious about using projected income from short-term rentals. Alternative lenders may be more flexible, depending on the property’s location and your financial profile. 4. Debt-Service Ratios Lenders use your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios to determine if you can handle the mortgage payments alongside your other obligations. With investment or vacation properties, lenders may apply stricter guidelines, especially if your primary residence already carries a large mortgage. 5. Credit & Financial Stability Your credit score, employment history, and overall financial health still matter. Since vacation and rental properties are considered higher risk, lenders want reassurance that you can handle the additional debt—even if rental income fluctuates or the property sits vacant. 6. Insurance Requirements Rental properties often require specialized landlord insurance, and vacation homes may need coverage tailored to seasonal or secondary use. Lenders will want proof of adequate insurance before releasing mortgage funds. The Bottom Line Buying a vacation property or rental can be exciting, but financing these purchases comes with extra rules and considerations. From higher down payments to stricter property requirements, lenders want to be confident that you can handle the responsibility. If you’re considering a second property, the best step is to work with a mortgage professional who can compare lender requirements, outline your options, and find the financing that works best for you. Thinking about making your dream of a vacation or rental property a reality? Connect with us today.
Bank of Canada maintains policy rate at 2¼%. FOR IMMEDIATE RELEASE Media Relations Ottawa, Ontario January 28, 2026 The Bank of Canada today held its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. The outlook for the global and Canadian economies is little changed relative to the projection in the October Monetary Policy Report (MPR). However, the outlook is vulnerable to unpredictable US trade policies and geopolitical risks. Economic growth in the United States continues to outpace expectations and is projected to remain solid, driven by AI-related investment and consumer spending. Tariffs are pushing up US inflation, although their effect is expected to fade gradually later this year. In the euro area, growth has been supported by activity in service sectors and will get additional support from fiscal policy. China’s GDP growth is expected to slow gradually, as weakening domestic demand offsets strength in exports. Overall, the Bank expects global growth to average about 3% over the projection horizon. Global financial conditions have remained accommodative overall. Recent weakness in the US dollar has pushed the Canadian dollar above 72 cents, roughly where it had been since the October MPR. Oil prices have been fluctuating in response to geopolitical events and, going forward, are assumed to be slightly below the levels in the October report. US trade restrictions and uncertainty continue to disrupt growth in Canada. After a strong third quarter, GDP growth in the fourth quarter likely stalled. Exports continue to be buffeted by US tariffs, while domestic demand appears to be picking up. Employment has risen in recent months. Still, the unemployment rate remains elevated at 6.8% and relatively few businesses say they plan to hire more workers. Economic growth is projected to be modest in the near term as population growth slows and Canada adjusts to US protectionism. In the projection, consumer spending holds up and business investment strengthens gradually, with fiscal policy providing some support. The Bank projects growth of 1.1% in 2026 and 1.5% in 2027, broadly in line with the October projection. A key source of uncertainty is the upcoming review of the Canada-US-Mexico Agreement. CPI inflation picked up in December to 2.4%, boosted by base-year effects linked to last winter’s GST/HST holiday. Excluding the effect of changes in taxes, inflation has been slowing since September. The Bank’s preferred measures of core inflation have eased from 3% in October to around 2½% in December. Inflation was 2.1% in 2025 and the Bank expects inflation to stay close to the 2% target over the projection period, with trade-related cost pressures offset by excess supply. Monetary policy is focused on keeping inflation close to the 2% target while helping the economy through this period of structural adjustment. Governing Council judges the current policy rate remains appropriate, conditional on the economy evolving broadly in line with the outlook we published today. However, uncertainty is heightened and we are monitoring risks closely. If the outlook changes, we are prepared to respond. The Bank is committed to ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. Information note The next scheduled date for announcing the overnight rate target is March 18, 2026. The Bank’s next MPR will be released on April 29, 2026. Read the January 28th, 2026 Monetary Report
