Why Canadian Mortgage Rates Beat U.S. Rates (And Why Prepayment Penalties Aren't Actually the Enemy)

Here's something that'll make you appreciate the Canadian mortgage system: we pay way less for our mortgages than Americans do. Like, significantly less.

A 5-year fixed rate in Canada right now? Around 4.19% (uninsured). The same term in the U.S.? They're paying roughly 5.51%.

That's a huge difference. On a $300,000 mortgage, we're talking about saving close to $10,000 over five years just by being on this side of the border.

So what's going on here?

How U.S. Mortgages Actually Work

In the U.S., most people get what they call a 30-year mortgage. But here's the confusing part: it works completely differently than ours.

Their mortgages are open. You can pay them off anytime, sell your house, refinance whenever rates drop, whatever. Zero penalty.

Sounds amazing, right?

Here's the catch: You pay for that freedom whether you use it or not. It's baked into a higher interest rate from day one.

Think of it like this: You're paying extra every single month for the option to leave early, even if you never do.

How Canadian Mortgages Work Differently

We do the opposite.

You agree to a term (say, 5 years) and if you break that agreement early, you pay a penalty. That penalty could be three months' interest or something called an Interest Rate Differential (which can get expensive).

But because you've agreed to stick around, the lender gives you a lower rate upfront. You're only paying the penalty if you actually break the deal.

So you save money every month, and only pay if you leave early.

Even Billionaires Think We're Onto Something

Bill Ackman, a major U.S. investor, recently suggested Americans should adopt penalties like we have in Canada. His experts estimate it could save American borrowers about 65 basis points on their rate.

Translation: almost $10,000 saved over five years on a $300,000 mortgage.

Basically, he's saying, "Hey, maybe Canada's got this figured out."

Why Canadians Complain But Shouldn't

Here's the thing. Canadians hate prepayment penalties. We complain about them constantly.

But those penalties are exactly why our rates are lower in the first place.

It's like complaining about paying your gym membership while you're actively using the gym. You're getting the benefit right now, you just don't like the commitment.

If we got rid of penalties tomorrow, your mortgage rate would jump by 50-65 basis points or more. You'd be paying American prices.

What This Means For You

Think twice before breaking your mortgage early. You're already getting the savings through your lower rate. Breaking early means giving some of that back.

If you need to break, we can help minimize the damage. Portable mortgages, timing strategies, lender selection, all of it matters. We work with 60+ lenders and some have way friendlier penalty structures than others.

Appreciate the system we've got. Yeah, it's not perfect. But compared to paying an extra $10,000 for flexibility you might never use? I'll take our version.

Plan ahead if you know life might change. Selling soon? Job relocation possible? Let's factor that into your mortgage choice now, not later.

The Bottom Line

Americans pay more every single month for freedom they may never use.

Canadians pay less every month and only pay penalties if they actually break their commitment.

Neither system is perfect, but I know which one keeps more money in your pocket.

If you're shopping for a mortgage or coming up on renewal, let's talk about what actually makes sense for your situation. The best mortgage isn't always the one with the lowest rate, it's the one that fits your real life.

Our advice is free and could save you thousands.

Your mortgage... rethought.