Whether you’re buying your first home or your fifth, the mortgage process can feel like a lot to take in. But here’s the thing: getting a mortgage doesn’t have to be complicated—especially if you take the time to get pre-approved before you start shopping.
In this post, let’s break down what mortgages and pre-approvals actually are, how they work and why getting pre-approved is the first move you can make when thinking about real estate.
What’s a Mortgage, Really?
A mortgage is simply a loan from a lender (usually a bank, credit union, or mortgage broker) that helps you buy a home. Most homebuyers need a mortgage unless they’re buying a property outright in cash (which sadly isn’t most of us).
You’ll pay back the loan over time—typically 25 or 30 years—with interest. Your payments will include:
Principal: the amount you borrowed
Interest: the cost of borrowing that money
Property taxes and insurance may be rolled in too, depending on your lender
What Is a Mortgage Pre-Approval?
A mortgage pre-approval is kind of like getting a “green light” from a lender. It means a lender has looked at your finances—like your income, debt, credit score, and savings—and decided how much they’re likely willing to lend you.
You'll typically receive:
A maximum purchase price
An estimated monthly payment
A locked-in interest rate (valid for 3 months)
Important: A pre-approval isn’t a guarantee. But it is a strong indicator of your budget and a big advantage when you’re ready to make an offer.
Why Should You Get Pre-Approved?
Here’s why you don’t want to skip this step:
You’ll know your budget. No guessing. No heartbreak falling in love with a home you can’t afford.
You’ll look serious to sellers. In competitive markets, a pre-approval letter can make your offer stand out.
You’ll spot red flags early. If your credit score or debt level is an issue, it’s better to know upfront so you can make a plan.
You can lock in your rate. If rates are climbing, pre-approval protects you from short-term increases while you shop.
Insured vs. Uninsured Mortgages: What’s the Difference?
This is a key concept most buyers aren’t familiar with—but it can affect your interest rate, the size of your down payment, and even which lenders will work with you.
Insured Mortgages
An insured mortgage means your loan is backed by mortgage default insurance. This type of mortgage is required if:
Your down payment is less than 20%
You’re buying a home under $1.5 million
The insurance protects the lender (not you) in case you default on the loan. The cost is added to your mortgage and paid off over time.
Pros:
Lower interest rates
Smaller down payment needed (as low as 5%)
Cons:
You pay for mortgage insurance
Insurance not available on homes over $1.5M
Uninsured Mortgages
An uninsured mortgage applies when:
Your down payment is 20% or more
You’re buying a home worth over $1.5 million
You’re buying an investment property
These typically come with slightly higher interest rates and stricter qualification rules.
The Mortgage Stress Test: What You Need to Know
Whether your mortgage is insured or not, all borrowers in Canada must pass the mortgage stress test. It’s basically a way for lenders to make sure you could still afford your payments if interest rates were to rise.
Here’s how it works:
Lenders qualify you using the higher of:
The Bank of Canada’s benchmark rate (currently 5.25%), or
Your actual contract rate plus 2%
So even if your lender offers you a 4.89% mortgage, they’ll check whether you can afford payments at 6.89%.
Why this matters:
It affects how much you can borrow
It protects you from getting in over your head if rates go up
It applies to everyone—not just first-time buyers
This is one of the main reasons people are sometimes pre-approved for less than they expected—so it's important to factor in the stress test when budgeting.
What’s new?
You can now switch lenders at renewal without redoing the stress test
High debt-to-income borrowers (over 4.5x your income)? OSFI’s (Office of the Superintendent of Financial Institutions) capping how many uninsured loans banks can give out. So you might have fewer options if you’re over-leveraged
What You Need for a Pre-Approval in Canada
Getting pre-approved is usually pretty quick and easy, getting the documents may take some time as you’ll need to provide:
Proof of income (pay stubs, T4s, job letter, etc.)
Details on your debts and monthly payments
Info about your down payment (savings, RRSP, gift from family)
Government-issued ID
Consent for a credit check
Some lenders offer online pre-approvals that take just minutes. Others might want a phone call or in-person meeting.
Pro Tip: Work With a Mortgage Broker
Mortgage brokers work with multiple lenders and can help you shop for the best rates and terms. They’re especially helpful if:
You’re self-employed
You’ve had past credit issues
You’re a newcomer to Canada
You want to compare lenders without doing all the legwork yourself
Best of all? In most cases, their services are free—the lender pays them once your mortgage funds.
Final Thoughts: Don’t Shop Without One
In short: a pre-approval isn’t just helpful—it’s essential in today’s market. It gives you clarity, confidence, and a competitive edge when it’s time to write an offer.
And understanding the difference between insured vs. uninsured mortgages—and how the stress test affects your approval—is key to avoiding surprises down the line.
If you need a solid mortgage broker to walk you through the process or help get you pre-approved, I can recommend my preferred mortgage broker to help get you started!
