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Nobody wants to pay more than necessary when getting a mortgage. But more than four out of five applicants have little chance at getting Canada’s true lowest rate.

Rock-bottom rates are reserved only for mortgages that present the least risk and cost for the lender. And relatively few mortgages fall into this bucket.

Mortgages have always been priced based on the risk you present to the lender. But after 10 years of government rule tightening, that’s true today more than ever.

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At this very minute, the absolute lowest contractual mortgage rate in Canada is 2.4 per cent, as tracked by RateSpy.com. It’s a variable rate available solely to impeccable credit borrowers financing a primary-residence purchase and paying for default insurance. It’s got a bunch of other restrictions, too.

If you need more flexible financing, you’ve got to fork out more − no way around it.

How much more hangs on what kind of mortgage you need.

To help illustrate how your risk profile plays into the rate you can expect, I’ve put together the list you see below. It shows approximately how much extra you’ll pay for a given mortgage type, versus today’s lowest available mortgage rate of 2.4 per cent.

This rate premium in the right column is based on the cheapest mortgage available for the criteria in the left column, regardless of lender or term.

It shows you the very least you’d have to pay to get a given feature, as of this moment in time. For example, compared with Canada’s lowest rate (2.4 per cent), you’d have to pay almost 0.35 percentage points more (i.e., 2.75 per cent total) for the cheapest mortgage that allows a 30-year amortization.

If multiple criteria apply to you, you’ll often pay a combination of the below rate premiums.

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In some cases, you’ll also pay more for:

  • A longer rate guarantee (e.g., 120 days instead of 30 or 60)
  • A smaller down payment (e.g., 20 per cent instead of 35 per cent)
  • A more favourable penalty policy (if you decide to break the mortgage early)
  • Semiannual compounding on variable rates (instead of more expensive monthly compounding)
  • A short remaining amortization (e.g., nine years)

The point of all this is to show how lenders think and price. They upcharge for almost anything that materially increases their costs and/or the risk that you won’t pay them back. While most things are negotiable in life, lenders generally don’t budge very much if your application presents a materially higher risk of default − that is, unless their starting rate is uncompetitive to begin with.

With competition and rule changes squeezing lenders’ profitability now more than ever, you really do get what you pay for in a mortgage.

Robert McLister is a mortgage planner at intelliMortgage and founder of RateSpy.com. You can follow him on Twitter at @RateSpy.

Mortgage rate factors

If you… You’ll pay at least this much more
Want to refinance to consolidate debt 0.25 percentage point
Want a variable rate with a fixed payment 0.15 percentage point
Want a five-year fixed rate (default insured) 0.65 percentage point
Want a five-year fixed rate (not default insured) 1.05 percentage point
Need a 30-year amortization 0.35 percentage point
Are buying a home over $1 million 0.20 percentage point
Want a pre-approval 0.25 percentage point
Have a high debt ratio (> 44% of income) 0.55 percentage point
Have a credit score below 660-720 0.10 percentage point
Have a credit score below 600 1.85 percentage points + lending fees
Have a recently discharged bankruptcy 3.50 percentage points + lending fees
Want a readvanceable mortgage (linked to a HELOC) 0.25 percentage point
Want investment property financing 0.35 percentage point
Are financing a default insured 3-season cottage 0.25 percentage point
Are financing a non-insured 3-season cottage 0.50 percentage point
Have a rural (non-farm) property 0.15 percentage point
Want flexible porting privileges 0.05 percentage point
Want maximum flexibility to refinance early 0.15 percentage point
Want ability to skip payments 0.25 percentage point
Want ability to renew early without penalty 0.25 percentage point
Have a small mortgage (e.g., < $100,000) 0.20 percentage point

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