Mortgage in Quebec: What You Really Need to Know Before Buying
Dernière mise à jour : 17 août
Buying a property is exciting. But between the down payment, interest rate, amortization, pre-approval, and all the lender’s conditions, mortgages can quickly become a real headache.
The good news? You don’t need to become a mortgage expert to make smart decisions.
You mainly need to understand the elements that will affect your budget today… and your finances a few years from now.
Here’s what you really need to know about mortgages in Quebec before getting started.
What Exactly Is a Mortgage?
A mortgage is financing secured by real estate.
It can be used to:
purchase a property;
refinance a property you already own;
transfer a mortgage;
renew your financing.
The property serves as security for the lender. If you default on your obligations, the lender may exercise the remedies provided under the mortgage agreement and applicable law.
But for most homeowners, a mortgage is simply a long-term loan that is gradually repaid through principal and interest payments.
And that’s where several important choices come into play.
Fixed or Variable Rate: Which One Should You Choose?
This is probably one of the first questions you’ll ask yourself.
And contrary to what you might think, there isn’t one right answer for everyone.
Fixed Rate
With a fixed-rate mortgage, your interest rate stays the same throughout the mortgage term.
Its main advantage is simple: stability.
You know your rate and can more easily plan your payments during the term.
This option may be a good fit if you prefer knowing exactly what to expect and don’t feel comfortable with interest-rate fluctuations.
Variable Rate
With a variable-rate mortgage, the interest rate can change during your term.
Depending on the product, a rate change may affect your payment, the portion of your payment that goes toward principal, or your amortization.
A variable rate may work well for some borrowers, but you need to be comfortable with possible fluctuations.
So the real question isn’t simply: “Which rate is the lowest today?”
A better question is:
“Which type of mortgage best fits my situation, my plans, and my tolerance for risk?”
Open or Closed Mortgage: A Difference That Can Cost You
People often hear about open and closed mortgages without really understanding the difference.
But that difference can become very important if you sell your property or repay your mortgage before the end of the term.
Open Mortgage
An open mortgage generally allows you to repay part or all of the loan without a penalty.
That flexibility usually comes at a cost: an open mortgage may have a higher interest rate than a comparable closed mortgage.
It may be useful, for example, if you expect to sell your property soon or receive a large amount of money that you want to apply toward your mortgage.
Closed Mortgage
A closed mortgage is much more common.
You can usually make certain extra payments without penalty, depending on the prepayment privileges included in your mortgage agreement.
However, if you go beyond those limits or repay the mortgage in full before the end of the term, a penalty may apply.
That’s why you should never look at the interest rate alone.
A great rate with very restrictive conditions may become much less attractive if your plans change.
Conventional or Insured Mortgage: What’s the Difference?
Here’s another mortgage concept that sounds complicated but becomes much easier once you break it down.
Conventional Mortgage
A mortgage is generally considered conventional when the loan represents 80% or less of the recognized value of the property.
This is referred to as a loan-to-value ratio, or LTV, of 80% or less.
Mortgage loan insurance is generally not mandatory for this type of financing, although a lender may require it in certain situations.
Insured Mortgage
When the loan-to-value ratio is above 80%, mortgage loan insurance is generally required.
This insurance primarily protects the lender in the event of borrower default.
The insurance premium can represent a significant cost and should therefore be taken into account when planning your financing.
Eligibility rules for insured mortgages can change over time, so it’s important to verify the requirements that apply when you are ready to buy.
How Much Can You Really Afford?
This is where an important distinction needs to be made.
The amount you can borrow is not necessarily the amount you should borrow.
A lender will analyze your financial situation and may consider:
your income;
your debts;
your credit payments;
property taxes;
heating costs;
certain condo fees, when applicable;
your credit history;
your down payment.
Lenders also use debt-service ratios to assess your ability to carry the mortgage payments.
You may hear about the Gross Debt Service ratio (GDS), which mainly considers housing-related expenses, and the Total Debt Service ratio (TDS), which also takes your other financial obligations into account.
But even if you qualify for a certain amount, ask yourself another question:
“Will I actually feel comfortable making this payment every month?”
You want to enjoy your home, not simply be able to pay for it.
The Advertised Rate Isn’t Always the Rate Used to Qualify You
This comes as a surprise to many homebuyers.
Even if your actual mortgage rate is the one shown in your financing offer, the lender may have to use a higher qualifying rate to determine how much you can borrow.
This is often referred to as the mortgage stress test.
In other words, the lender wants to make sure you could still afford your mortgage if interest rates or your expenses were to increase.
That’s one reason why an online mortgage calculator may not give you exactly the same borrowing amount as a full mortgage qualification.
Term and Amortization: They’re Not the Same Thing
These two terms are often confused.
Mortgage Term
The term is the period during which the conditions of your mortgage remain in effect.
At the end of the term, you will generally need to renew the mortgage, repay it, or arrange another type of financing.
Amortization
The amortization is the total amount of time planned to fully repay your mortgage.
Generally:
Shorter amortization = higher payments, but less interest paid over time.
Longer amortization = lower payments, but more interest paid over time.
Once again, the right choice depends on your budget and financial goals.
Mortgage Pre-Approval: Your First Real Step
Starting to look at homes?
Before falling in love with a property, it’s often a good idea to know what you can realistically afford.
That’s where mortgage pre-approval comes in.
A pre-approval can give you a better idea of the amount of financing you may qualify for.
The process may include a review of:
your income;
your employment;
your assets;
your down payment;
your debts;
your credit history.
A pre-approval can help you focus your search on a more realistic price range.
But keep in mind:
A mortgage pre-approval is not a guarantee of final approval.
The property itself, its value, your supporting documents, and the lender’s conditions must still be acceptable when the final mortgage application is submitted.
How Does the Mortgage Process Work?
Here’s a simple overview of the main steps.
Step 1: Understand Your Project
Are you buying your first home?
A condo?
A duplex or multi-unit property?
Are you planning renovations?
How much do you have for a down payment?
What monthly payment feels comfortable for you?
Your situation and your goals will influence the type of financing that makes sense.
Step 2: Review Your Financial Situation
The next step is to look at your overall financial picture.
Your income, debts, credit, assets, down payment, and monthly financial obligations all help determine your borrowing capacity.
Step 3: Get Pre-Approved
A mortgage pre-approval can then give you a clearer idea of your purchasing power before you seriously begin looking at properties.
Step 4: Find a Property
Once your budget is clearer, you can look for a property that fits both your needs and your finances.
If you’re working with a real estate broker, they will generally help you search for the property and prepare the offer to purchase.
Step 5: Finalize Your Financing
Once your offer has been accepted, your mortgage application can be completed.
The lender may request additional documents and, depending on the file, an appraisal of the property.
The financing must meet the conditions required by the lender.
Step 6: Meet With the Notary
Once all conditions have been satisfied, the transaction can be finalized with the notary.
The notary handles important legal aspects of the transaction and the required legal documents.
And after everything is signed?
Congratulations — the keys are finally yours.
Don’t Compare Interest Rates Alone
It’s worth repeating because it’s important.
The rate matters.
But the rate is only one part of your mortgage.
When comparing two mortgage products, also look at:
penalties;
prepayment privileges;
options to increase your payments;
fees;
transferability;
product flexibility;
rate type;
mortgage term;
amortization.
Two mortgages can have almost the same interest rate and still be very different products.
If you think you may sell, move, refinance, or repay your mortgage faster, these conditions can become extremely important.
Prepayments: A Small Strategy That Can Make a Big Difference
Many mortgage products allow borrowers to make additional payments without penalty, up to certain limits specified in the contract.
For example, you may be able to:
increase your regular payments;
make a lump-sum payment;
accelerate your payment frequency.
These strategies can help reduce your principal faster and, as a result, lower the amount of interest you pay over time.
But prepayment privileges vary from one lender to another.
Always check the conditions of your mortgage agreement before making an additional payment.
What About Mortgage Penalties?
Nobody buys a house thinking:
“I can’t wait to pay a mortgage penalty.”
But it’s still something you need to understand from the beginning.
If you repay a closed mortgage before the end of the term, including because of a sale or refinance, a penalty may apply.
The calculation method depends on the type of mortgage and the lender.
Before breaking a mortgage, always ask the lender for the official penalty amount.
That number can completely change whether refinancing or switching lenders actually makes financial sense.
Don’t Forget the Other Costs of Owning a Property
Your mortgage payment is only one part of your housing budget.
Depending on your situation, you may also need to plan for:
municipal taxes;
school taxes;
home insurance;
condo fees;
maintenance;
repairs;
notary fees;
property transfer taxes;
certain appraisal fees;
adjustments at closing.
A home that looks affordable when you only consider the mortgage payment can become much more expensive once all the other costs are added.
First-Time Homebuyer? Take a Look at the HBP and FHSA
If you’re buying your first property, certain programs may help you build your down payment.
Home Buyers’ Plan — HBP
The Home Buyers’ Plan may allow an eligible buyer to withdraw certain amounts from their RRSP to help purchase a qualifying home.
First Home Savings Account — FHSA
The First Home Savings Account, commonly known as the FHSA, can also be a useful tool for building a down payment if you meet the eligibility requirements.
The rules, limits, and eligibility requirements for these programs can change, so it’s important to verify the conditions in effect when you are planning your purchase.
What Does a Mortgage Broker Actually Do?
A mortgage broker shouldn’t simply hand you an interest rate and say:
“Here you go — this is the cheapest one.”
Their job starts with understanding your financial situation, your project, and your goals.
They can then review different financing solutions available to them and explain the advantages and disadvantages of each one.
A mortgage broker should consider factors such as:
your financial capacity;
your goals;
the type of property;
your down payment;
your tolerance for rate fluctuations;
financing costs;
penalties;
product conditions;
your future plans.
The recommended solution should therefore be suited to your needs, not simply chosen because it has the lowest advertised interest rate.
5 Mistakes to Avoid Before Signing Your Mortgage
1. Buying at Your Maximum Qualification Just Because You Can
Qualifying for a $600,000 purchase doesn’t automatically mean you should buy a $600,000 property.
Your personal budget still matters.
2. Choosing Based Only on the Interest Rate
A lower interest rate can sometimes come with a less flexible product or different penalties.
Compare the entire mortgage, not just the rate.
3. Not Reading the Conditions
Penalties, prepayment privileges, fees, and transfer options can make a huge difference later.
4. Forgetting the Costs That Come After the Purchase
Taxes, insurance, maintenance, repairs, and condo fees should all be included in your budget.
5. Changing Your Financial Situation Before Closing
A new car loan, a new credit card, or another major change to your financial situation before closing could affect your mortgage qualification.
If something changes, speak with the professional handling your financing as soon as possible.
In Conclusion: A Good Mortgage Is About More Than a Good Rate
One of the most common mistakes is reducing a mortgage to a single number: the interest rate.
In reality, a good mortgage solution should fit your financial situation, your plans, and your comfort level.
Before signing, make sure you understand:
your payment;
your interest rate;
your term;
your amortization;
your prepayment privileges;
your penalties;
your fees;
and what could happen if your plans change.
Buying a property is a major financial commitment.
The better you understand your financing before signing, the better prepared you’ll be to make an informed decision — and enjoy your new home with far fewer financial surprises.
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