LISTED: RAM Developments Selling Muskoka Site Approved For 60 Waterfront Units

Interest Rate

Learn what interest rate means in Canadian real estate, how it works in holding deposits and documents, and why it's important for a secure property transaction.

Interest Rate

May 22, 2025


What is Interest Rate?

An interest rate is the percentage charged by a lender on the amount borrowed for a mortgage, expressed as an annual rate.

Why Interest Rate Matters in Real Estate

Interest rates directly affect the cost of borrowing and the affordability of homeownership in Canada. A lower interest rate reduces monthly payments and total interest paid over the life of a mortgage, while a higher rate increases borrowing costs.

Interest rates can be fixed (unchanging over the mortgage term) or variable (fluctuating with the lender’s prime rate). Mortgage rates are influenced by the Bank of Canada’s policy rate, inflation trends, and overall economic conditions.

Understanding interest rates helps buyers make informed decisions about mortgage products, budget accurately, and lock in favorable terms during periods of rate volatility. Rate comparisons and pre-approvals can save thousands over time.

Lenders may also offer discounted rates for clients with strong credit, high down payments, or who bundle products (e.g., banking and insurance).

Example of Interest Rate

A buyer secures a 5-year fixed mortgage at a 4.2% interest rate. Over the term, they consistently pay the same rate on the outstanding principal balance.

Key Takeaways

  • Affects monthly mortgage payments and total borrowing cost.
  • Can be fixed or variable.
  • Influenced by central bank rates and economic trends.
  • Lower rates reduce long-term costs.
  • Essential to compare rates before committing to a mortgage.

Related Terms

Additional Terms

Recourse Loan

A recourse loan is a type of loan where the lender can pursue the borrower’s personal assets, beyond the collateral, in the event of default.. more

Pari Passu

A pari passu clause is a contractual provision ensuring that multiple creditors share equally in repayment priority from the borrower’s assets.. more

Non-Recourse Loan

A non-recourse loan is a type of loan where the lender’s only remedy in case of default is to seize the collateral property; the borrower is not. more

Net Operating Income

Net operating income (NOI) is the total income generated by a property after operating expenses are deducted but before taxes and financing costs.. more

Mechanic's Lien

A mechanic’s lien is a legal claim by a contractor, subcontractor, or supplier for unpaid work or materials provided for a property.. more

Lis Pendens

Lis pendens is a legal notice filed in the land registry indicating that a property is subject to ongoing litigation that may affect its title.. more

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