Ontario Mortgage Guide: Rules, Costs and Penalties

A mortgage in Ontario is a loan secured by your home, repaid in regular payments over an amortization of up to 25 or 30 years, and renewed at the end of each shorter term. The rules that matter most are the minimum down payment, the stress test and the penalty for leaving the contract early. This guide walks through each one with figures from official sources and a worked example you can rebuild in the mortgage payment calculator.

How a mortgage payment is built

Every payment covers two things: interest on what you still owe and a slice of the principal. Early on, most of the payment is interest. As the balance falls, the split shifts, so the same payment pays down more principal each year.

The payment is set so the balance reaches zero at the end of the amortization. Change the rate, the balance or the amortization and the payment changes with them. You can watch the split year by year in the mortgage amortization schedule calculator.

Payment frequency also matters. Monthly is the usual default. Biweekly and weekly options exist, and accelerated versions add up to slightly more than 12 monthly payments in a year, which cuts the balance faster. Your contract says exactly which options you have.

Semi-annual compounding explained

Interest is added to the balance at set intervals, and that interval is the compounding period. Under section 6 of the federal Interest Act, a mortgage on real property must state the rate calculated yearly or half-yearly, not in advance. In practice, many Canadian fixed rate mortgages are quoted with semi-annual compounding, and some variable rate products compound monthly. Your mortgage documents state which one applies to you.

Why it matters: a 5.00% rate compounded twice a year is not the same as 5.00% compounded monthly. The first has a monthly equivalent rate of about 0.4124%, the second 0.4167%. On $640,000 over 25 years, that gap is roughly $19 a month ($3,722 against $3,741). Small, but it explains why a US mortgage calculator gives a different answer than a Canadian one.

Term and amortization are different things

The Financial Consumer Agency of Canada describes the term as the time your mortgage contract is in effect, anywhere from a few months to five years or more. The amortization is the time it takes to pay the whole mortgage off. Most people have a 25 year amortization split into a series of 5 year terms.

At the end of each term you renew, renegotiate or switch lenders. The balance carries over. Only the rate and conditions reset.

A longer amortization lowers the payment but raises total interest. The FCAC gives a $300,000 mortgage at 4%: about $1,578 a month over 25 years with $173,418 of interest, against $3,033 a month over 10 years with $63,919 of interest. Since December 15, 2024, insured mortgages can have a 30 year amortization for all first-time buyers and for buyers of newly built homes.

Down payment tiers and CMHC insurance

With less than 20% down, mortgage loan insurance is required on homes priced at $1.5 million or less. The minimum down payment is 5% of the first $500,000 of the price plus 10% of the portion between $500,000 and $1.5 million. From $1.5 million up, insurance is not available and the minimum is 20%.

A $900,000 home shows how the tiers work. Five percent of $500,000 is $25,000. Ten percent of the remaining $400,000 is $40,000. The minimum down payment is $65,000, or about 7.2% of the price. The down payment calculator does this arithmetic for any price.

The insurance protects the lender, but the borrower pays for it. CMHC premiums are a percentage of the loan and depend on loan to value. On the CMHC standard table, 80.01% to 85% costs 2.80%, 85.01% to 90% costs 3.10% and 90.01% to 95% costs 4.00%. Lower ratios cost less, from 0.60% up to 65% and 2.40% from 75.01% to 80%.

CMHC gives one example: a $750,000 home with $60,000 down is an 8% down payment, so the premium is 4%, about $27,600. It can be added to the mortgage or paid upfront. Ontario charges provincial sales tax on the premium, and that tax cannot be added to the loan, so it is paid in cash at closing. Try your own numbers in the CMHC mortgage insurance calculator.

A First Home Savings Account can help here, with limits of $8,000 a year and $40,000 for a lifetime.

The mortgage stress test

Lenders check that you could still pay if rates rose. For uninsured mortgages at federally regulated lenders, the Office of the Superintendent of Financial Institutions sets the minimum qualifying rate as the greater of your contract rate plus 2% or 5.25%. OSFI says it reviews the rate at least annually, so check the current figure before you apply.

At a contract rate of 5.00%, the qualifying rate is 7.00%. On a $640,000 mortgage over 25 years, the payment at 7.00% is about $4,483 a month, while the payment you would actually make at 5.00% is about $3,722. You have to show income and debts that support the higher number. Test your own case in the mortgage stress test calculator.

There is an exception at renewal. Lenders do not have to apply the rule when you switch an uninsured mortgage between federally regulated lenders, as long as the amortization and the loan amount do not increase.

Fixed or variable

A fixed rate stays the same for the whole term. A variable rate can change during the term. The FCAC example has a 5 year term offered at 5.5% fixed or 6.5% variable, a reminder that the variable rate is not always the cheaper one at the start.

Fixed gives certainty. Variable can save money if rates fall and cost more if they rise. Penalties differ too, as the next section explains. The fixed vs variable mortgage calculator lets you test both under a few rate paths.

Prepayments and penalties

Prepayment privileges let you pay extra without a charge. Most mortgages allow a lump sum up to a set share of the original balance each year, an increase in regular payments, or both. The FCAC notes that most lenders limit the amount you can prepay in a year. Every extra dollar goes to principal and cuts the interest on the remainder, which you can model in the mortgage prepayment calculator.

A penalty applies if you go over your privileges, break the contract, switch lenders mid term or sell without porting. The FCAC says it can run to thousands of dollars.

Two methods are common. The first is three months of interest on the remaining balance. The second is the interest rate differential, or IRD, which compares what you would owe at your current rate with what you would owe at a rate the lender uses today for a similar remaining term. The difference estimates the interest the lender loses. For fixed rate mortgages the penalty is often the higher of the two. For variable rate mortgages it is often three months of interest.

Lenders differ, and this is where surprises come from. Some use their posted rates as the comparison, some use a discounted rate, and some apply time value of money to the result. Federally regulated lenders must explain in plain language how they calculate the charge, and your annual statement shows the amount. Read that section of your contract before you sign.

A simplified illustration, not any lender’s formula: a balance of $566,448 at 5.00% has about $7,081 of interest over three months. If two years remain and the comparison rate is 4.00%, a rough IRD is 1% of the balance for two years, about $11,329. Real formulas adjust for the falling balance, so treat this as a way to see the scale. The mortgage penalty calculator gives a closer estimate. Porting the mortgage to a new home is one way the FCAC lists to reduce or avoid a penalty.

Renewal

A federally regulated lender must send a renewal statement at least 21 days before the term ends. It shows the balance, rate, payment frequency, term and any charges. That letter is an offer, not a final price.

The FCAC suggests comparing offers from other lenders and mortgage brokers several months ahead, keeping proof of them and using them when you negotiate with your current lender. You are not locked into the current lender. If you switch, budget for discharge, registration and appraisal fees, and ask whether the new lender will cover them. Tell the new lender if your mortgage is insured so you avoid paying a second premium.

Collateral charge mortgages can add removal and registration costs when you move, so find out how yours is registered. Stretching the amortization to lower the payment costs more interest over time. The mortgage renewal calculator compares a new rate and payment with your current ones.

Land transfer tax and closing costs

Buyers pay land transfer tax when the purchase closes. Ontario charges 0.5% up to $55,000, 1% to $250,000, 1.5% to $400,000, 2% to $2 million and 2.5% above that, for homes with one or two single-family residences. A $1,000,000 home costs $16,475 provincially.

Toronto adds its own municipal tax with a similar structure, which is another $16,475 on the same home. First-time buyers can claim a rebate of up to $4,000 provincially and up to $4,475 in Toronto. Higher municipal bands for expensive homes started April 1, 2026. Run the numbers in the land transfer tax calculator.

Legal fees, title insurance, the sales tax on mortgage insurance and adjustments for property tax also land on closing day. The closing costs calculator gathers them in one place.

A worked example with stated assumptions

These are assumptions, not a quote. Price $800,000 in Toronto. Down payment 20%, or $160,000. Mortgage $640,000. Rate 5.00% fixed for five years, compounded semi-annually. Amortization 25 years. Monthly payments. Buyer is not a first-time buyer, so no rebate.

The monthly payment comes to about $3,722. After five years, about $149,784 of that money has gone to interest and the balance is about $566,448. So the first term reduces the loan by roughly $73,552 while costing $223,336 in payments.

Land transfer tax on $800,000 is $12,475 provincially (0.5% of $55,000, 1% of the next $195,000, 1.5% of the next $150,000 and 2% of the last $400,000), plus the same $12,475 to Toronto. That is $24,950 in land transfer tax before legal fees and other costs.

With 20% down there is no mortgage insurance. Put down only 10% instead, and the loan would be $720,000 plus a 3.10% premium of $22,320, all before provincial sales tax on the premium. Compare the two cases side by side in the calculators linked above.

Common mistakes

Focusing on the rate alone is the first. A slightly lower rate with a harsh penalty formula can cost more than a slightly higher rate with flexible terms.

Skipping the qualifying test at the planning stage is another. Work out the stressed payment before you fall for a house, and check the mortgage affordability calculator for a price range.

Some buyers forget cash costs. Land transfer tax, legal fees and the tax on insurance are due at closing, and the down payment alone will not cover them.

Others accept the renewal letter without shopping around, or extend the amortization to cut the payment without seeing the interest that adds. Some sign a contract without reading the prepayment clause until they need to sell. Find your rules in the mortgage contract, ask the lender to explain the penalty method in writing and browse the other tools in the mortgage calculators hub. More explainers sit in the guides section.

Sources

Common questions

How much down payment do you need for a house in Ontario?

It is 5% of the first $500,000 of the price plus 10% of the part from $500,000 to $1.5 million. Homes at $1.5 million or more need 20% down.

Last reviewed: September 29, 2026. Figures come from the official sources listed above. How we check the numbers and our editorial policy.

What are You Looking For?

How Mortgages Work in Ontario, Step by Step