Mortgages can be confusing, and many Canadians fall for common mortgage myths that could cost them thousands. Misunderstandings about laws, programs, and opportunities in the Canadian housing market often lead to missed chances or delayed homeownership.
From misconceptions about down payments to myths around interest rates, prepayment penalties, and renting versus owning, these false beliefs can significantly impact financial decisions.
In this blog, we’ll debunk five of the most common mortgage myths Canadians still believe. Learn the facts, avoid costly mistakes, and discover strategies to save money and make smarter home-buying decisions.
Myth 1: Purchasing A House Calls For A 20% Down Payment
One of the most often held fallacies is that before you can purchase a home, you must save 20% of its price. Many Canadians believe this threshold is required; therefore, they put off homeownership for years.
The truth is much more adaptable. High-ratio mortgages and mortgage insurance schemes let Canadians buy homes with down payments as little as 5% of the purchase price. You only need 5% down for properties under $500,000. For properties valued at $500,000 to $999,999, you would have 5% on the first $500,000 and 10% on the remaining sum.
If you cannot pay your mortgage, mortgage default insurance from companies like CMHC safeguards lenders when your down payment is less than 20%. Although this coverage increases your expenses, generally 2.8% to 4% of your mortgage sum, it enables you to get into the market faster.
Myth 2: The Cheapest Interest Rate Always Constitutes The Best Deal
Most Canadians naturally turn to the lowest advertised rate when purchasing mortgages. Still, concentrating just on interest rates can be an expensive error.
Consider this instance: Borrower Although A offers a 4.5% rate, it penalises you severely if you have to pay early and forbids extra payments. Lender B provides 4.7% but has reasonable break costs and lets 20% annual lump-sum prepayments penalty-free.
You should get a bonus or inheritance and want to pay down your mortgage; Lender B’s terms may save you far more than the 0.2% rate difference would cost.
Myth 3: You Can’t Prepay Your Mortgage Without Penalties
Many Canadians worry about high penalties and so refrain from making additional mortgage payments. This legend prevents individuals from using one of the most effective methods of wealth creation available.
Most Canadian mortgages offer prepayment options that let you make extra payments free of charge. Typical choices include accelerated payment plans, larger monthly payments (normally up to 20% more), and yearly lump-sum payments (often 10–20% of your initial mortgage amount).
Your entire interest charges can be much lower with these payment methods. One annual $10,000 lump-sum payment could, for instance, on a $400,000 mortgage at 5% over 25 years, save you more than $50,000 in interest and shorten your amortization by several years.
Before signing, you must first clarify the prepayment conditions of your particular mortgage agreement. Ask your broker or lender specifically what alternatives you will have and use them purposefully when you have additional money.
Myth 4: Renting is Cheaper Than Owning
Given that Canadian home values are hitting all-time highs in many areas, renting usually seems to be the more economical option. Though monthly rent installments seem less than mortgage payments, this perspective of renting vs mortgage comparison overlooks the larger financial perspective.
Paying rent guarantees that money disappears forever; it furnishes housing but produces no future riches. Mortgage payments build equity, on the other hand, in an item you own.
Every payment contains principal that grows your ownership interest in your property. You are wealth-building over time as you pay off your mortgage, and your house might rise in value.
Think about Toronto, where the typical two-bedroom apartment costs over $2,800 a month. A similar condo buy with a 10% down payment may have monthly payments of $3,200. Although that’s $400 more each month, you’re gaining $800–1,000 in equity every month by means of principal payments, plus gaining from any property appreciation.
Myth 5: Banks Provide The Best Prices; Mortgage Brokers Are Not Required
Many Canadians go right to their bank when looking for a mortgage, believing that their current relationship guarantees the best price. This strategy often leaves money on the table.
Banks can only provide their own mortgage products; therefore, your range is restricted. Mortgage brokers collaborate with many banks, credit unions, alternative lenders, and private mortgage companies, dozens in all. This access lets brokers evaluate alternatives and identify answers that banks might not publicize.
Wrap Up
Understanding the truth behind these five common mortgage myths can help Canadians make smarter, more informed home-buying decisions. You don’t always need a 20% down payment, the lowest interest rate isn’t always the best deal, prepayments can often be made without penalties, owning usually builds more wealth than renting, and mortgage brokers can provide access to better options than banks alone.
Take Action Today!
Don’t let common mortgage myths cost you thousands. Contact Diverse Mortgage Group for expert guidance tailored to your financial situation. Our knowledgeable team stays up-to-date with Canadian mortgage solutions, helping you secure the right mortgage, save money, and achieve your homeownership goals with confidence.
Visit our website today to get started!
FAQs
Which dominant mortgage fallacies should Canadians be cognizant of?
Among the most persistent misconceptions are the need for a 20% down payment, focusing only on interest rates, worrying about prepayment penalties, believing renting is always cheaper, and thinking banks offer better rates than brokers.
Can I actually get less than a 20% down payment on a home?
That’s true! High-ratio mortgages and mortgage insurance programs supported by default insurance allow Canadians to buy houses with as little as 5% down payment.
For Canadians, are low mortgage rates always the best bargain?
Not necessarily. Your overall financial condition will determine the ideal mortgage, including conditions, penalty structures, and prepayment flexibility.
Is it correct that prepayment of my mortgage will always incur fees?
No, most Canadian mortgages include prepayment options that allow lump-sum payments or accelerated timelines free from penalty.
Can I just go straight to my bank, or do I really need a mortgage broker?
Although banks are also one of the good options, brokers usually offer access to several lenders and specialized programs that your bank might not provide, usually at no cost to you.
