Mortgage Misconceptions: Debunking the Top 7 Myths

Buying a home in Canada can feel overwhelming—especially when mortgage myths get passed around like well-worn stories at family dinners. Let’s clear the air. Below is a Canada-specific, fact-checked guide to the most common mortgage misconceptions, written to reflect how mortgages actually work under Canadian rules.

Grab a coffee, get comfortable, and let’s separate fact from fiction.

Myth 1: You Need a Large Down Payment to Buy a Home

This myth stops many Canadians from even starting their homeownership journey.

In Canada, the minimum down payment depends on the purchase price:

• 5% for homes priced at $500,000 or less.

• 5% on the first $500,000 and 10% on the portion above $500,000 for homes priced between $500,000 and $1,499,999.

• 20% for homes priced at $1.5 million or more. (Note: This threshold was recently raised from $1 million, effective December 15, 2024).

  
  

If your down payment is less than 20%, mortgage default insurance (such as CMHC, Sagen, or Canada Guaranty) is required and is typically added to your mortgage balance.

You don’t need a massive down payment—but understanding the trade-offs is essential.

Myth 2: You Need a Perfect Credit Score to Get a Mortgage

Many Canadians believe you need an almost flawless credit score to qualify for a mortgage. While strong credit certainly helps, a “perfect” score is not required.

Canadian lenders take a holistic approach when reviewing applications. Your credit score is important, but it’s assessed alongside:

• Income and employment stability

• Debt-service ratios (GDS/TDS)

• Down payment amount

• Assets and savings

  
  

Borrowers with less-than-perfect credit may still qualify—sometimes through alternative or private lenders—though this can mean higher interest rates or stricter terms. The key takeaway: credit matters, but perfection is not mandatory.

Myth 3: You Can’t Get a Mortgage with a Modest Income

You don’t need a six-figure salary to own a home in Canada.

Lenders focus on affordability, not just income alone. They evaluate:

• Gross Debt Service (GDS) and Total Debt Service (TDS) ratios

• Existing debts

• Stability and type of income (employment, self-employed, rental, etc.)

• Canada’s mortgage stress test

  
  

A lower income may reduce how much you can borrow, but it doesn’t automatically disqualify you. Responsible borrowing is about balance, not income alone.

Myth 4: Mortgage Rates Are Set in Stone

Mortgage rates are influenced by market conditions, lender policies, and the Bank of Canada—but they are not permanently fixed or universally non-negotiable.

In Canada:

• Rates can change daily for new borrowers

• Lenders often offer discounted rates below their posted rates

• Working with a mortgage broker can help you compare options across multiple lenders

  
  

Once your mortgage term is locked in, your rate remains stable for that term—but before signing, shopping around can make a real difference.

Myth 5: Paying Off Your Mortgage Early Is Always the Best Strategy

Owning your home outright is appealing, but paying off your mortgage as fast as possible isn’t always the smartest financial move.

Canadian mortgages often include:

• Annual prepayment limits

• Lump-sum payment caps

• Penalties for breaking or paying off a closed mortgage early

  
  

With historically fluctuating interest rates, some homeowners choose to invest surplus cash elsewhere rather than accelerate mortgage payments. The best approach depends on interest rates, penalties, investment returns, and personal goals.

A balanced strategy—often with professional advice—usually works best.

Myth 6: Mortgages Are Full of Hidden Fees

Mortgages don’t come with secret charges—but they do come with costs that buyers sometimes underestimate.

In Canada, lenders are required to disclose mortgage-related fees clearly. Common costs include:

• Appraisal fees

• Legal and closing costs

• Mortgage default insurance premiums

• Title insurance

  
  

These aren’t hidden, but they can catch buyers off guard if not reviewed carefully. Asking questions and understanding the full cost upfront is key.

Myth 7: Getting a Mortgage Is the Same Everywhere

Mortgage rules vary widely by country—and Canada has its own unique framework.

Key Canadian-specific factors include:

• The mortgage stress test, which ensures borrowers can handle higher interest rates

• Mandatory mortgage insurance for low-down-payment purchases

• Prepayment penalties on many fixed-rate mortgages

  
  

Understanding these Canada-specific rules helps set realistic expectations and prevents unpleasant surprises.

Final Thoughts

Mortgage myths can make homeownership feel more intimidating than it needs to be. The reality is that Canada’s mortgage system is structured to balance opportunity with financial responsibility.

With the right information—and guidance from a qualified mortgage professional—you can move forward with confidence, clarity, and realistic expectations.

Knowledge isn’t just power in real estate—it’s peace of mind.

Recommended For You:

Your Key to Homeownership: Deciphering Down Payments, Mortgage Insurance, and More

Cracking the code: Mortgage Amortization Strategies for Financial Freedom

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I am a Victoria-based local realtor with eXp Realty. My commitment to honesty, integrity, loyalty, and hard work have been essential pillars for me because they drive a high standard of excellent service for my clients. Helping you realize your dream is my goal!

I service Vancouver Island, but my focus is on Victoria, Sooke, Saanich, Malahat, Shawnigan Lake, Cobble Hill, Duncan, and the rest of the Cowichan Valley.

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