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.
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
- Fixed Rate Mortgage
- Variable Rate Mortgage
- Mortgage Term
- Mortgage Pre-Approval
- Debt Service Ratio
6525 Mississauga Road and its surrounding context. (RBC Capital Markets & CBRE)
Property details for 6525 Mississauga Road. (RBC Capital Markets & CBRE)
National average resale-price growth and housing-starts growth, smoothed over three months. The comparison illustrates the cycle; it does not establish how much a price change causes construction to change.
Trailing 12-month starts in centres of 50,000 or more remove the usual monthly seasonality. Ownership combines the homeowner and condominium categories; rental is shown separately.
Six-month averages of provincial starts, expressed at annual rates. The smoothing reduces the influence of individual apartment projects.
The same August benchmark compared with two different starting points. Three-month changes are not annualized.
Average sale prices show the difference in purchase costs across markets. They do not measure affordability relative to local incomes or construction costs.
Newfoundland and Labrador remains above its pre-pandemic sales pattern, but August activity was below last year. Historical lines retain their original release vintages.
Average and median describe different aspects of the same month’s transactions. Both are affected by the mix of homes sold.
Category averages compare different homes and locations; the gaps are not estimates of the cost to upgrade an otherwise identical property.
The five categories shown account for 5,000 of the board’s 5,057 sales. The remaining 57 transactions were in other housing categories.
Monthly observations are not seasonally adjusted. Active listings count properties available at month-end; they are not construction inventory.
Average and median prices share one dollar axis. These unadjusted transaction measures do not control for changes in the homes sold.
TRREB’s 416/905 categories compare the apartments sold in each area. The difference does not isolate a location premium for equivalent units.
5680 Oak Street in Vancouver and its surrounding context. (MCMP Architects)
Ground-level renderings of the tower proposed for 5680 Oak Street in Vancouver. (MCMP Architects)