Posted Rate vs Discounted Rate on a Canadian Mortgage

A posted vs discounted mortgage rate comparison comes down to this: the posted rate is the lender's published, headline number, and the discounted rate is the lower rate you actually negotiate and sign. Almost nobody pays the posted rate on a new Canadian mortgage — but that headline number still matters, because some lenders use it to calculate your prepayment penalty later.

What the posted rate actually is

Every major lender publishes posted rates for each term — a 1-year, 3-year, 5-year fixed, and so on. Think of it as the sticker price on a car lot. It is set by the lender's treasury and pricing teams, influenced by Government of Canada bond yields, funding costs, competition, and the margin the lender wants to earn. Fixed posted rates tend to track bond yields rather than the Bank of Canada policy rate, while variable-rate products move with prime rate. How mortgage rates work in Canada covers that mechanism in detail.

The posted rate is also the reference point for the discount. When a lender approves you at "posted minus 1.20%", that discount is a number off the posted rate — not a standalone rate you can shop around independently of it.

What a discounted rate actually is

The discounted rate — sometimes called the contract rate or the special offer rate — is what you pay. For fixed-rate mortgages it is often described as a discount off posted. For variable-rate mortgages it is quoted as prime plus or minus a spread, so if prime moves, your rate moves with it. See Canada's prime rate, explained for how prime is set and why it drifts.

Your discount depends on your credit history, down payment size, property type, amortization, whether the mortgage is CMHC-insured or uninsured, the term you choose, and whether you work with a broker who can compare several lenders at once. A larger down payment and a shorter amortization can improve the discount; a rental property, a long amortization, or a thinner credit profile can shrink it. No lender guarantees a specific discount to every borrower, so treat any quoted discount as an offer, not an entitlement.

Why the gap between posted and discounted rates exists

Posted rates are not designed to be paid. They act as a ceiling, a marketing anchor, and — importantly — a benchmark used inside some penalty formulas. Because the posted rate sits above what borrowers actually pay, a lender can advertise a large, headline-friendly discount without giving up as much margin as the number suggests.

The size of the gap moves with market conditions. In competitive stretches it can widen; when funding costs rise it can narrow. That is why comparing a 1.5% discount to a 1.1% discount tells you nothing on its own. What matters is the contract rate you would actually pay on the same term, the same product, on the same day.

Posted vs discounted: side by side

Where the posted rate still costs you money

For a closed fixed-rate mortgage, the interest rate differential (IRD) penalty is often calculated using posted rates. Many lenders take the posted rate on your original term, subtract the posted rate for a comparable term at the time you break the mortgage, then multiply the difference by your remaining balance and remaining time. The discount you originally received may be subtracted back out — or not — depending on the lender's formula.

Because posted rates sit above the rates borrowers actually pay, IRD penalties on fixed mortgages can run far higher than three months' interest when rates have fallen since you signed. Three months' interest is the more common penalty on variable-rate mortgages. Interest rate differential (IRD), explained and the penalty for breaking a mortgage early walk through the math and the disclosure rules lenders must follow.

How posted and discounted rates interact with qualification

Under OSFI Guideline B-20, federally regulated lenders must qualify you at the higher of your contract rate plus two percentage points or a published minimum qualifying floor. Insured mortgages follow the same approach. This is the mortgage stress test — a buffer used to test your budget, not a rate you pay. Confirm the current floor with OSFI or your lender, since it can change.

Here is the practical point: qualifying uses the contract (discounted) rate, not the posted rate, at most federally regulated lenders today. A bigger discount therefore does double duty — it lowers your payment and slightly lowers the stress-test bar. The Canadian mortgage stress test, explained covers how this affects your maximum purchase price, alongside your GDS and TDS ratios.

How to compare posted vs discounted offers honestly

• Ignore the size of the discount. Ask for the contract rate on the exact term and product you want.
• Ask whether the quote is insured or uninsured, and what the mortgage default insurance premium would add to your balance.
• Ask how the prepayment penalty is calculated — the IRD formula on a fixed rate, or three months' interest on a variable rate.
• Confirm what happens if posted rates move during your rate hold: does the discount stay fixed, or does the rate? See rate holds and rate locks.
• Compare total cost, not just the rate: term, payment frequency, prepayment privileges, and any fees.
• Get every quote in writing on the same day so you are comparing like with like.

Questions to ask before you sign

Ask your lender or broker: what is my contract rate, what posted rate is it discounted from, and how is my early payout penalty calculated? Ask whether that penalty uses posted or discounted rates, and whether my original discount is clawed back. Ask what your payment would look like at renewal if rates are higher. A few minutes of questions now can save real money later, and how to compare mortgage rates in Canada gives you a repeatable framework to work from.