Are Alberta mortgage rates the lowest in Canada?

Alberta is a province in Canada. It is the fourth largest by area and the fifth-largest by population. Alberta has been hit hard by the oil price decline, but it remains one of the wealthiest provinces in Canada. The province’s economy is primarily based on natural resources and agriculture. Alberta also has a large manufacturing sector.

Higher average wages with lower real estate prices make Alberta homebuyers a lower risk for mortgage lenders in Canada. As a result, Alberta has some of the lowest mortgage rates in Canada. Continue reading to learn why and how to get the best mortgage rates in Alberta.

Current Alberta Mortgage Rates

Mortgage interest rates vary depending on an individual’s credit history, income and debt levels. Most of the banks in Canada have a prime lending rate, which is currently 2.45%, as of February 2022. Lenders will then adjust the rate depending on your creditworthiness and financial history. Currently, fixed-rate mortgages in Canada range around prime plus 0.50%-1%, while variable rates are prime minus 1%-1.5%. This means the average variable rate mortgage is 0.95%-1.45%. If you prefer a fixed-rate mortgage, you can review a list of the best Alberta mortgage rates which you can find below.

  • TD Five-Year Fixed Rate: 2.94%
  • RBC Five-Year Fixed Rate: 3.19%
  • BMO Five-Year Fixed Rate: 3.02%
  • CIBC Five-Year Fixed Rate: 3.02%
  • Scotiabank Five-Year Fixed Rate: 4.79%

However, you can receive mortgage rates as low as 0.89% in Alberta from the website linked above. Alberta’s high median salary and stable housing market have helped keep its mortgage rates below the national average.

How Income Affects your Mortgage Rate

Your riskiness as a mortgage borrower is calculated using debt service ratios. Mortgage lenders assess what percentage of your income is used towards mortgage payments and other home-related expenses. According to the Canadian Mortgage and Housing Association (CMHC) rules, your gross debt service ratio can’t exceed 39%. This means to receive a mortgage, no more than 39% of your income can be used for payments towards your mortgage, property tax, and utilities.

Lenders prefer to see a lower percentage to ensure you won’t have trouble with mortgage payments. Having a higher income generally means you have more ability to make mortgage payments and are a lower-risk borrower. Given Alberta has the highest median salary in Canada, borrowers are usually lower risk and have an easier time qualifying for a better mortgage rate.

How Home Purchase Price Affects your Mortgage Rate

On the other side of the debt service ratio, a lower home purchase price means you’ll have smaller mortgage payments. According to housing market research, the average Calgary home price in 2021 was $477,977. This is $679,872 less than the average Toronto housing price of $1,157,849.

Lower housing prices indicate less of your income goes towards mortgage payments. As a result, you are considered less risky and can receive better mortgage rates. Given the higher median incomes and lower home-related expenses, Alberta residents improve their ratio on both sides of the equation. As a result, they are considered lower-risk borrowers. It’s no wonder why Alberta residents receive some of the best mortgage rates in Canada.

What is the Average Mortgage Payment in Alberta?

According to the Canada Mortgage and Housing Corporation (CMHC) data, the average 2021 mortgage payment for a Calgary resident was $1,522 per month. This is slightly larger than the $1,458 per month Edmonton homeowners pay. The increase is due to higher housing prices in Calgary.

However, mortgage payments are expected to increase over the next few years due to higher interest rates. Generally, it’s advised to opt for a fixed-rate mortgage when you expect interest rates to rise. This is because the fixed rate will lock in your rate, while an increase in your variable rate will cause you to pay more interest.

Five Tips to Get the Best Mortgage Rate in Alberta

If you plan on getting a mortgage in Alberta, here are five tips to help you get the best rate possible.

  1. Shop around

Typically the big five banks in Canada don’t offer the best mortgage rates. There are many upcoming Canadian mortgage lenders that can save you money. A mortgage broker can be a great resource to help you navigate mortgage lenders in Canada.

  1. Check credit history

A higher credit score will help you negotiate a better interest rate. Typically, a credit score above 750 will provide you with access to the lowest interest rates. The bare minimum credit score to receive a mortgage in Canada is 600. However, you will be limited to working with C-lenders and private mortgages with higher interest rates.

Additionally, your credit score will decrease each time you apply for a mortgage from a different lender. Using a mortgage broker can solve this because they will only need to pull your credit score once to assess you for multiple mortgages.

  1. Enhance your debt service ratio

Follow all of the steps listed above to improve your debt service coverage and lower your mortgage riskiness. Remember, your mortgage payments affect your ratio too! Raising your income is the quickest way to improve this metric.

If increasing your salary is out of the picture, consider purchasing investment properties. A common strategy to get the best interest rate is house hacking, where you buy a multiplex and live in one unit. This method allows you to use the income you will be receiving in the future to help you qualify for a mortgage.

  1. Don’t Save up for a down payment

Contrary to popular belief, the best mortgage rates are reserved for those with a down payment below 20%. You’re required to obtain mortgage default insurance that protects your lender if you can’t make mortgage payments. Mortgage default insurance removes the risk for your lender, so you’ll receive a better interest rate.

  1. Get pre-approved

Visit a bank and get them to review your creditworthiness and income. This will give you an idea of what kind of mortgage rates you can expect. You may even be able to lock in a specific rate.

The Bottom Line

The higher median income and low real estate prices in Alberta can explain the province’s low mortgage rates. If you plan on getting a mortgage in Alberta, make sure to follow our tips to receive the best interest rate.