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The mortgage interest rate — also called the contract rate — is the annual percentage a lender charges to lend the money, and it’s what’s used to calculate the principal-and-interest portion of a borrower’s regular payment for the mortgage term.
The interest rate is the number written into the mortgage contract for the current term. On a fixed-rate mortgage it stays locked for the whole term and, by law, is compounded semi-annually, not in advance. On a variable-rate mortgage it floats with the lender’s prime rate.
It’s worth keeping three related numbers straight: the interest rate itself, the lender’s posted rate (a published starting point most borrowers don’t actually pay), and the APR (the interest rate plus most other mandatory borrowing costs, expressed as one figure).
Compounding convention: fixed-rate mortgages in Canada are compounded semi-annually, not in advance, under section 6 of the federal Interest Act — a different convention than monthly-compounding markets.
Not the qualifying rate: the contract rate is what the borrower actually pays; it is not the same figure used to stress-test the file (see minimum qualifying rate).
Discounted off posted: the rate actually offered is typically negotiated down from the lender’s posted rate, sometimes materially, sometimes not.
Who negotiates it: mortgage agents (Ontario, FSRA), submortgage brokers (BC, BCFSA), mortgage associates (Alberta, RECA), and courtiers hypothécaires (Quebec, AMF) shop the contract rate across lenders on a client’s behalf.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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