Rates are an incredibly important factor in securing a mortgage, but other considerations must also be made to ensure that your loan meets your long-term needs.
Posted Rates Vs. Special Rates
The posted rate is the rate that a lender openly advertises and is generally considered the starting rate for a mortgage rate negotiation. It is typically the uppermost rate that a bank will give you.
Special rates, also known as discounted rates, are advertised discounts off posted rates.
Special Offers
RBC currently advertises these special mortgage offers where you’ll earn up to $5,700 in value (Terms and conditions apply. Offer expires August 31, 2025):
- Get up to a $3,500 cash bonus when you have or open an eligible RBC Bank account, enroll in the Value Program, fund your mortgage by December 29, 2025 and make at least one mortgage payment from the same bank account by January 28, 2026
- Earn up to 55,000 Avion points, up to $1,100 in value, when you have or open an eligible RBC bank account and enrol in the Value Program
- Get back up to $1,100 in switch fees when you transfer your mortgage from another lender to RBC
Fixed Vs. Variable Mortgage Rate
With a fixed-rate mortgage, you make the same payment over the entire term. Your mortgage rate and payment are not affected by changes to the Bank of Canada’s (BoC) overnight rate.
If you have a variable-rate mortgage, however, your mortgage payments change in sync with the overnight rate; as rates go down, so does your mortgage payment. But as rates go up, your mortgage payment rises as well. Your lender will typically quote the variable rate as prime plus a number, such as RBC prime + 0%.
Assuming a $300,000 mortgage with a 25-year amortization, here’s how the payments compare using current RBC mortgage rates:
But, when the prime rate drops, that variable-rate mortgage will also drop.
For example, later this year, when it is widely anticipated that the Bank of Canada will cut its key interest rate by another 50 to 75 basis points, the prime rate will drop by the same amount.
Historically, variable interest rates have outperformed fixed-rate mortgages. However, anyone who held a variable-rate mortgage in March 2022 would have experienced 10 rate hikes and seen the prime rate increase from 2.70% to 7.20% over that time. This illustrates the risk of a variable-rate mortgage during times of economic downturn and uncertainty.
Related: Should I Choose a Fixed-Rate Or Variable-Rate Mortgage?
Shorter Vs. Longer Mortgage Term Lengths
Your mortgage term is the amount of time you are contractually obligated to pay your mortgage at a stipulated rate, which can either be fixed or variable. With a five-year fixed-rate mortgage, for example, you’ll pay the same amount each payment at a given interest rate for five years. With a 5-year variable-rate mortgage, your rate will vary in sync with the prime rate in relation to the rate you are offered when you start your mortgage for five years.
A long-term mortgage is typically one with a term longer than three years. For example, RBC offers the following long-term mortgages:
- 4-year (fixed, closed)
- 5-year (fixed and variable, closed and open)
- 7-year ((fixed, closed)
- 10-year (fixed, closed)
- 25-year (fixed, closed)
A short-term mortgage has a term of three years or less. RBC offers the following short-term mortgages:
- 6-month convertible
- 1-year (closed and open)
- 2-year (closed)
- 3-year (fixed, closed)
If you want the consistency of a fixed-rate mortgage but think rates may go down in the future, you can choose a shorter term with the hope that rates will be lower at renewal time. However, if you prefer budgeting a set mortgage payment for a longer period of time, then you might choose a longer-term mortgage.
Open Vs. Closed Mortgages
An open mortgage gives you more flexibility to pay off your mortgage or break your mortgage contract than a closed mortgage. For example, with an open mortgage, you can convert it to another term at any time without a prepayment penalty. However, an open mortgage typically has a higher interest rate in exchange for this flexibility.
With an RBC mortgage, here’s how the prepayment charges are calculated:
- Fixed-rate mortgage: The greater of three months’ interest or the interest for the remainder of the term on the amount prepaid using the interest rate differential.
- Variable-rate mortgage: Three months’ interest
Typically, there are four times when you would incur a prepayment charge with a closed mortgage:
- When your prepayment is greater than the annual allowance
- When you prepay your mortgage in full before the maturity date
- When you renew or refinance your mortgage before the maturity date
- When you move your closed mortgage to another lender before the maturity date
Convertible Mortgages
With an RBC convertible closed mortgage, you can convert your mortgage from a 6-month term to a longer, closed term at any time without prepayment penalties.
Prime Rate
Canadian banks and lenders use the prime rate to set the interest rate on their variable-rate mortgages and other products, including loans and lines of credit.
RBC’s prime rate is currently 4.95%.
Posted Rate vs. APR
The posted interest rate is the rate that RBC advertises openly. The APR, or annual percentage rate, includes other borrowing costs, such as fees.