The Most Common Mortgage Mistakes Canadian Borrowers Make (And How to Avoid Them)

Buying a home or refinancing a mortgage may be the largest financial decision many Canadians will ever make. Yet many mortgage borrowers unknowingly make costly mistakes that can increase their costs, limit flexibility, or derail approval altogether.

At our mortgage brokerage, we regularly help clients fix issues that could have been avoided with the right advice upfront. Here is some advice to help you avoid the most common mortgage mistakes in Canada.

1. Shopping for a Rate Without Considering the Mortgage Terms

Mistake: Focusing only on the lowest advertised mortgage rate.

Solution: Compare the full mortgage product. This includes prepayment penalties, prepayment options, portability and other features; not just the rate.

Many Canadian borrowers assume the lowest rate is always the best deal. In reality, some low-rate mortgages come with restrictive terms such as high interest-rate differential (IRD) penalties, limited prepayment privileges (such as bona fide sales clauses), or no portability. These features can cost tens of thousands of dollars if you break or change your mortgage early.

In addition, even when a lender or mortgage broker is offering you the lowest rate, get full disclosure upfront on fees, closing costs and any potential renewal costs (especially for short-term, low rate offers). Finding these things out late in the process can present you with an unwelcome surprise.

A mortgage should be evaluated based on total cost, not just the interest rate. This includes penalties, fees, and how the mortgage fits your long-term plans.

2. Getting Pre-Approved Too Late (or Not at All)

Mistake: House hunting before securing a mortgage pre-approval.

Solution: Get a mortgage pre-approval in writing from a mortgage lender before making offers.

In competitive Canadian housing markets, waiting to discover what mortgage you might qualify for until after an offer is accepted can be risky. A pre-approval confirms your borrowing power, protects you from rate increases for a set period, and helps you uncover any issues early, such as credit, income, or property type concerns. A pre-approval also makes your offer more credible to sellers, especially when conditions are tight. But make sure it is from a lender, on lender letterhead and not from a broker.

3. Assuming Your Bank Is Offering the Best Option

Mistake: Only speaking with your existing bank.

Solution: Work with a licensed Canadian mortgage broker who can compare multiple lenders.

Banks can only offer their own mortgage products. Mortgage brokers, on the other hand, work with major banks, credit unions, and non-bank lenders across Canada. This broader access often results in better pricing, more flexible terms, or alternative solutions when a bank declines an application.

More choice usually means better outcomes. For a financial decision as large as a mortgage, isn’t it worth knowing what choices are available to you in the market?

4. Not Understanding Mortgage Penalties in Canada

Mistake: Ignoring how mortgage prepayment penalties are calculated.

Solution: Choose a mortgage with fair and transparent penalty terms.

Many borrowers are surprised by large penalties when they sell, refinance, or break a fixed-rate mortgage early. In Canada, penalties can amount into the thousands of dollars. For fixed rate mortgages, they are typically the greater of three months of interest and the interest rate differential (IRD), which can vary widely between lenders.

Understanding penalty formulas before you sign can save you significant money later. This is especially true if there’s any chance you’ll move or refinance during the term.

5. Overlooking the Impact of Debt on Mortgage Approval

Mistake: Carrying high credit card balances or personal debt.

Solution: Reduce high-interest debt before applying for a mortgage.

Canadian lenders closely examine your debt service ratios. For an A-mortgage, the usual maximum allowed total debt service (TDS) ratio is 44%. This ratio includes the mortgage you are applying for and all your other debts. Even if you are the type to make payments on time, high balances can reduce the amount of mortgage you qualify for or make it challenging to qualify for an A-mortgage and get the best interest rate.

Paying down revolving debt improves both your credit score and borrowing capacity.

6. Making Large Financial Changes Before Closing

Mistake: Changing jobs, financing purchases, or applying for new credit before closing.

Solution: Once you start the mortgage process, keep your financial situation stable until the mortgage closes and funds.

Many borrowers don’t realize lenders re-verify employment, credit, and finances shortly before closing. A new car loan, job change, or missed payment can jeopardize an otherwise approved mortgage.

Stability is key from application through funding.

7. Choosing the Wrong Mortgage Term Length

Mistake: Selecting a term without considering future plans.

Solution: Align your mortgage term with your life and financial goals.

A five-year fixed mortgage is popular in Canada, but it isn’t always the right choice. If you expect to move, refinance, or access equity sooner, a shorter term or variable-rate mortgage (with lower prepayment penalties) may be more appropriate.

The right term balances rate certainty, flexibility, and risk tolerance.

8. Not Using Prepayment Privileges Strategically

Mistake: Ignoring lump-sum and accelerated payment options.

Solution: Use prepayment features to reduce interest and amortization and pay down your mortgage faster.

Most Canadian mortgages allow annual lump-sum payments and increased regular payments. These prepayment privileges can allow for additional principal paydowns without incurring any penalties. Some other simple things like changing from monthly to bi-weekly payments can save you money and pay down your mortgage faster, without costing you money. Borrowers who actively use these options can cut years off their mortgage and save thousands in interest without incurring any penalties.

Understanding and using these privileges is one of the simplest ways to build equity faster.

9. Failing to Plan for Renewal Early

Mistake: Waiting until the lender’s renewal offer arrives close to the renewal date.

Solution: Review renewal options 120 to 180 days before maturity.

Lenders often rely on borrower inertia at renewal time. By starting early, you can explore the market, negotiate better terms, switch lenders, or restructure your mortgage if needed, without any last-minute time pressure.

Early planning leads to better outcomes.

10. Not Getting Professional Mortgage Advice

Mistake: Treating a mortgage as a simple, one-time transaction.

Solution: Work with a mortgage professional who provides expert advice.

A mortgage has a lot of moving parts. It is not just about rate. Your mortgage impacts cash flow, tax planning, investment strategy, and long-term wealth. The right advisor helps you make informed decisions at purchase, renewal, and refinance, not just at closing.

Mortgage advice should be unbiased to any particular lender, consider rate and mortgage features and evolve as your life does.

Final Thoughts: Avoiding Mortgage Mistakes in Canada

Most mortgage mistakes aren’t caused by bad intentions. They’re caused by lack of planning, information or guidance. With the right advice and planning, Canadian borrowers can avoid unnecessary costs, improve flexibility, and make smarter long-term decisions.

If you’re buying, renewing, or refinancing a mortgage in Canada, speaking with an experienced mortgage broker early can make all the difference. At Frank Mortgage we transparently show you your options and provide the trusted advice you need. Reach us at 1-888-850-1337 or at www.frankmortgage.com.

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About The Author

Don Scott

Don Scott is the founder of a challenger mortgage brokerage that is focused on improving access to mortgages. We can eliminate traditional biases and market restrictions through the use of technology to deliver a mortgage experience focused on the customer. Frankly, getting a mortgage doesn't have to be stressful.

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Mortgage Rate Forecast For 2026

By George Holicka • January 27, 2026

What are Canadian mortgage rates going to do in 2026? We expect mortgage rates to remain fairly stable through 2026. We think that the Bank of Canada will hold rates steady for much of the year, though some analysts are calling for hikes in the latter half of the year. Bond yields are also expected to remain stable, meaning that fixed mortgage rate should not move much. Predictions are difficult and the markets are sending mixed signals right now. Read on to find out what this might all mean? 2026 Mortgage Rate Prediction Mortgage rates should remain within a close range near current rates for most of 2026. Variable mortgage rates will follow the Bank of Canada rates, which are expected to remain flat for the first half of the year. Bond yields could fluctuate with economic news and fixed mortgage rates will follow but are likely to remain within the high-3% to mid-4% range, absent any significant economic surprises. Variable Mortgage Rates in 2026 We expect variable mortgage rates to remain mostly unchanged in 2026, potentially increasing by 0.25% to 0.50% if the Bank of Canada hikes toward year-end. The one huge caveat to this is that if the ongoing trade discussions with the US go poorly, weakening Canada’s economy, there may be an incentive for the Bank of Canada to make some cuts, as long as inflation remains under control. We do not hope for this poor economic news so prefer to not predict it to be likely. Variable mortgage rates are now below fixed mortgage rates and should remain there for the time being. We anticipate five-year variable mortgage rates for the best borrowers to range from 3.4% to 4% throughout the year, depending on any policy shifts. Fixed Mortgage Rates in 2026 We do not expect much change in fixed mortgage rates in 2026, but there is a risk that fixed rates could increase. Bond yields have already priced in limited Bank of Canada cuts and have been stable lately. The recent stability in the US 10-year Treasury yield around 4.2% suggests the bond market is cautious about further cuts. In Canada, bond yields are exactly where they were one year ago, with the five-year Canada bond at 2.88% in late January 2026. We must pay heed to those signals since fixed mortgage rates depend on the bond market. We anticipate five-year fixed mortgage rates to range between 3.7% and 4.3% for most of the year. We rely on market inputs to generate our own expectations for mortgage rates in 2026. Those key inputs include: The Bank of Canada has indicated the current overnight rate of 2.25% is "about right" to keep inflation near 2%, but stands ready to respond if needed; Economists are forecasting moderate Canadian economic growth, which may not require further stimulus; The US Federal Reserve is expected to cut rates gradually in 2026, potentially two to three times, but with uncertainty from trade policies; The US 10-year Treasury yield has hovered around 4.2% in early January 2026; Canadian 5-year bond yields are around 2.88% in late January 2026, flat to a year ago and showing no signs of a downward trend; and Excessive government borrowing puts pressure on bond yields to rise to entice investors to buy the large volume of government debt There are many risks that are not priced in yet that could materialize. Economic weakness or tariff impacts could prompt more rate cuts and lower bond yields. The trade agreement between Canada, Mexico and the US expires this year and needs to be renegotiated. Economic strength or resurgent inflation could lead to hikes and higher rates. There are also political and geopolitical risks that are making headlines that are not in our area of expertise. They are difficult to predict but could significantly impact our interest rate markets in 2026, a year currently marked by uncertainty. What Happened to Mortgage Rates in 2025? In 2025, Canadian fixed mortgage rates remained relatively stable, declining by a modest 0.20% through the year. Canadian variable-mortgage rates declined by 1.0%, in lockstep with the Bank of Canada reducing their target rate by the same amount in 2025. The Canadian market entered 2025 with expectations for gradual Bank of Canada cuts, which materialized with reductions totaling 1.00% from January through October. The first cuts came in January and March (0.25% each), followed by holds through summer, then additional 0.25% cuts in September and October. The end result was a reduction in the overnight rate to 2.25% where it remains as we embark on a new year in 2026. The Bank of Canada rate cuts in 2025 had the expected direct impact on variable mortgage rates, which dropped by the same amount. Fixed rates are ‘forward-looking’, so they moved in anticipation but stabilized as cuts slowed. As the chart shows, fixed mortgage rates have levelled off over the past year.