Glossary
Discounted Rate
The discounted rate is the actual mortgage interest rate a lender offers a borrower after negotiation or promotion, sitting below that lender's published posted rate..
A discounted rate is the interest rate a lender actually offers a specific borrower after negotiation, promotional pricing, or broker sourcing, set below that same lender's posted rate. Posted rates are the published sticker prices; discounted rates are what most borrowers end up accepting.
Posted rate versus discounted rate
Canadian lenders publish posted rates for their fixed and variable products, but those figures are rarely what a borrower pays. The discounted rate is the result of pricing that reflects the borrower's credit profile, down payment, property, term, and the competition between lenders at the time of application.
Discounts are usually quoted in one of two ways. For fixed-rate mortgages, a lender may advertise a set number of percentage points off its posted rate. For variable-rate mortgages, the price is typically expressed as a spread against prime rate, such as prime minus a stated margin. Because prime is set by lenders and moves with the Bank of Canada's policy rate, a variable discount can stay the same while the rate you pay changes.
The discount also interacts with qualification. For most mortgages from federally regulated lenders, a borrower must qualify at the greater of their contract rate plus two percentage points, or a minimum qualifying rate published by the regulator. A stronger discounted rate can reduce the income needed to qualify, but that buffer is applied on top of it under the federal mortgage stress test.
Why the discount matters to borrowers
Interest is charged on a large balance over a long amortization period, so even a modest difference in the discounted rate changes both the regular payment and the total interest paid. When comparing offers, compare discounted rates only on identical terms, because the headline number is not the whole cost:
- Term length, and whether the mortgage is fixed or variable
- Whether the rate is held through a rate hold up to closing
- Prepayment privileges and penalties, which can offset a lower rate
- Whether the rate applies to a high-ratio or conventional mortgage
How a competitive discounted rate is obtained
Discounted rates are negotiable. Buyers commonly compare quotes from several lenders, including mortgage brokers who can check multiple lenders at once, and use a pre-approval or rate hold to protect a quoted discount while they shop for a property. Mortgage rates change frequently, so confirm the current figures directly with the lender or broker before committing. General guidance on comparing offers is in How to Compare Mortgage Rates in Canada.
Frequently asked questions
Is a discounted rate the same as a posted rate?
No. The posted rate is a lender's published sticker price, while the discounted rate is the lower figure actually offered to a borrower after negotiation or promotional pricing. Most Canadian borrowers receive a discounted rate, and the gap between the two can vary by lender, product, term length, and the borrower's credit profile.
Why do lenders advertise a discount off the posted rate?
Posted rates give lenders a consistent reference point, so a quoted discount is easy to compare across institutions. A fixed-rate offer may be described as a set number of percentage points below posted, while a variable-rate offer is usually described as a margin above or below prime rate.
Does a lower discounted rate mean I qualify for a larger mortgage?
A lower rate can reduce the payment used in debt service calculations, which may improve affordability on paper. However, federally regulated lenders still apply the federal stress test, requiring qualification at the greater of the contract rate plus two percentage points or a minimum qualifying rate, so the improvement is limited.
Sources
Related terms
- Posted Rate — A posted rate is the headline mortgage rate a lender publishes publicly, and it is usually higher than the discounted rate most borrowers actually receive.
- Prime Rate — The prime rate is the interest rate Canadian banks charge their most creditworthy borrowers, and it is the benchmark used to price variable-rate mortgages and lines of credit.
- Mortgage Stress Test — The federal mortgage stress test is a qualification rule that makes lenders check whether you could afford your mortgage if rates were higher than your contract rate.
- Rate Hold — A rate hold is a lender's commitment to reserve a quoted mortgage rate for a set period, often until a purchase closes.
- Fixed-Rate Mortgage — A fixed-rate mortgage keeps the same interest rate and the same scheduled payment for the entire mortgage term, so each payment is known in advance.