As we approach what is traditionally the time of year when the most real estate transactions happen, it seemed like a good time to provide you with a mortgage guide for 2026 as the spring real estate market approaches. 2026 stands to be an interesting year for both homeowners and people looking to buy for the first time. With the opportunity presenting itself for buyers in the real estate market in mind, let’s take a second to quickly review the basics of mortgages, what some of the current market conditions are, and highlight some of the things that can help you prepare for applying for a mortgage if that’s in the cards for you in 2026.
In This Article
- Back to Basics
- Know the Rules
- What Else to Expect
- Tips for Buyers (With Some Bonus Info for First-Time Buyers)
- Thoughts on the Current Mortgage Landscape
- Consult The Experts!
Back to Basics
To start with, I thought that a quick review of mortgage basics would be helpful to make sure we are all on the same page for the discussion that we will be having.
- Different types of mortgages in Ontario: There are two primary types of mortgages in Ontario:
- Fixed Rate Mortgages: A mortgage where the interest rate remains the same for the length of the term selected (typically anywhere from 1-10 years). Fixed rates are popular with people seeking stability.
- Variable Rate Mortgages: These mortgages have an interest rate that fluctuates with the lender’s prime interest rate. These rates typically move in concert with the Bank of Canada prime rate. Typically, variable rate mortgages have a slightly lower interest rate than fixed rates, but you run the risk of that changing if interest rates go up.
- The Stress Test: When you apply for a mortgage, you will need to be able to qualify for your mortgage payment via the stress test. The stress test requires you to qualify at a higher rate than you will be paying to help ensure that in the future you will still be able to afford your mortgage. It was implemented in recent years when the government was concerned about mortgage affordability when rates inevitably rebounded from historically low levels. The stress test requires you to qualify for your mortgage using a fictional interest rate that is the greater of:
- Your contract rate + 2%, or
- A minimum qualifying rate (right now that rate is 5.25%)
The Stress Test typically reduces the purchasing power for buyers. Think of it this way. If you have a mortgage with a 4.0% interest rate and a household income of $120,000, you could qualify for a mortgage of approximately $625,000. But with the stress test, you need to use 6.0% as the interest rate, meaning that you can only qualify for approximately $520,000 as a mortgage loan. This has a significant impact on how much you can qualify for when you are buying your new home.
- ‘A’ Lenders versus ‘B’ Lenders: These labels apply to different types of mortgage lenders in Ontario. They have different client profiles and underwriting guidelines.
- ‘A’ Lenders: These are the traditional mortgage providers, typically major banks, credit unions, and companies known as monoline mortgage lenders (side definition – a monoline lender is a lender that isn’t the traditional bank but offers only mortgage lending; they carry bank-level regulation with them). A lenders have strict underwriting criteria, offer lower rates because they only take on low-risk clients, and they offer access to insured mortgages through things like the CMHC.
- ‘B’ Lenders: These are lenders that have more flexible underwriting criteria than the traditional channels do. You can see these in the form of smaller trust companies, mortgage investment corporations, or specialty mortgage lenders. B lenders can look beyond credit scores and can include things like other income documentation in their decision; they typically have slightly higher rates than A lenders do because they are often taking on higher-risk clients they can’t offer insured mortgages, so more down payment is required; and typically they only offer shorter-term (1-3 years) options.
Know the Rules
There are some rules that you need to understand when it comes to mortgages. Aside from the previously mentioned stress test, there are other measures that have been put in place to help regulate the mortgage industry. These include:
- The down payment rules: In 2026, your minimum down payment needs to meet the following criteria based on the purchase price of your home:
- Up to $500,000: 5%
- $500,001 to 1.5 Million: 10%
- $1.5 Million or more: 20%
So if you pay $800,000 for your home, you need to have $55,000 for a down payment (calculated as 5% of the first $500,000 in purchase price plus 10% of the remaining amount below $1.5 million).
- Mortgage Insurance: There is an important note here, and that is that mortgage insurance is to protect the lenders, not you. If you have less than a 20% down payment for the purchase of your home, then mortgage insurance premiums will be added to your overall mortgage balance. You need to know as well that if you are looking at the purchase of a home that is $1.5 million or more, you are not eligible for mortgage insurance, so you must meet the 20% down payment rule for that purchase.
- Amortization Periods: In 2026, you are able to have a 30-year amortization on a mortgage if you are a first-time buyer with an insured mortgage or if you are buying a newly built home. You can also access a 30-year amortization if you aren’t a first-time buyer through uninsured mortgage options, though you should expect a slightly higher interest rate for this product. A thirty-year amortization results in your monthly payment amount being lower, and as a result, your purchasing power is increased.
What Else to Expect
Outside of numerous trips to your local home improvement store as you add your personal touch to your new home, there are a few other expenses that you will encounter. Some of these may include:
- Land Transfer Tax: This is a provincial tax that you pay when you purchase your home. The purpose behind the tax is to generate revenue for provincial (and sometimes municipal) governments to help pay for infrastructure and services. It is calculated on a graduated scale where the higher your purchase price, the more you will pay in tax. First-time buyers are eligible for a refund to a maximum of $4000 for any land transfer tax they pay.
- Closing Costs: There are many things that you will need to pay for leading up to when your deal closes. This includes things like legal fees, title insurance, home inspections, and moving expenses. Closing costs (including the land transfer tax) will typically be in the range of 3-5% of the purchase price of your home. These are expenses that you won’t be able to include in your mortgage, so make sure that you talk to your realtor and mortgage broker to get a detailed breakdown of anything that you will need to fund for the deal to close.
Tips for Buyers (With Some Bonus Info for First-Time Buyers)
When you are looking at buying a home, you should make sure that you try to make a few things happen to make your home shopping experience more enjoyable.
- Get a mortgage pre-approval: While it doesn’t offer the guarantee that you will get a mortgage, getting a pre-approval helps you know what a lender thinks they would approve you for based on your credit history and some basic financial information. A pre-approval helps you know what your budget should be when shopping for a home and will typically carry a ‘rate hold’ with it for a set period of time, so you know if interest rates go up during that window, you are locked in at the lower rate.
- Understand where your down payment is coming from: If you are an existing homeowner, it is most likely that the down payment for your new home will come from the equity that you have built up in your current home. For first-time buyers, remember that you can take advantage of the First Home Savings Account (FHSA) and the RRSP home buyers plan to save for your down payment in the most tax-efficient way possible.
- Understand your credit score: Knowing what your credit score is, what is affecting it, and how to improve it if needed will help you immensely when you are planning on looking for a mortgage.
- Understand your Budget: Making sure that you don’t accidentally fall in love with a house that you can’t afford will save you a lot of heartache. Knowing what you can comfortably afford for your monthly payments and then remaining at or below that number will make your daily life far easier to manage after you purchase your home.
Thoughts on the Current Mortgage Landscape
2026 stands to be an interesting year in the real estate world. In 2021, we had historically low interest rates due to several economic factors. What does this mean to us in 2026? All of the ultra-low-rate mortgages taken out in 2021 are about to reach the end of their 5-year term. This means that renewals are coming at the current rates and, in many cases, that may result in an existing homeowner having a higher monthly payment amount even though they are five years into their mortgage. If you have an existing mortgage that is coming up for renewal, make sure that you reach out to your broker to review your options and avoid the potential payment shock that is on its way to you.
We have seen real estate values stagnate and even decrease slightly in the past few years, so buyers who are well prepared, both financially and strategically, have the chance to take advantage of a buyer’s market as the inventory increases when sellers list their properties for the traditional ‘spring market,’ when real estate sales are typically highest. Buyers who have positioned themselves properly will be able to take advantage of bargaining power that they haven’t had in many years.
Finally, there is an expectation that interest rates will remain fairly stable in the upcoming months, with no dramatic cuts forecasted right now. Of course, there is a major unknown involved: the political situation in the USA and how the rapid changes in government policy will affect the global economy, but the expectation is that we won’t see any major moves in Canadian interest rates in the near future.
Consult The Experts!
This is the biggest tip that we can provide in a guide to 2026 mortgages. Consult a mortgage broker, like the team at Strata Mortgages, to help guide you through your mortgage path. A mortgage broker can provide you with valuable insight as to what the interest rate market is expected to do (to help you decide if a variable rate mortgage is a good idea), what product is the best fit for your situation, and guide you through the application process to help avoid any unexpected surprises. They also have access to a broad network of lenders that allows them to negotiate the best deal on your behalf. Let the experts work on your behalf to make your journey to homeownership less stressful than trying to navigate the system on your own.
