When you compare mortgages you will see two numbers: the interest rate and the APR (annual percentage rate). For a bank, both are defined by federal rules, the Financial Consumer Protection Framework Regulations (SOR/2021-181) under the Bank Act. This page, part of the mortgage rates hub, explains what the APR counts, what it leaves out and how to use it when comparing offers.
The short answer
The regulations define the APR as “the cost of borrowing for a loan under a credit agreement, expressed as an annual rate on the principal”, and add that “the APR for a credit agreement is the annual interest rate if the only cost of borrowing is interest.” So:
- No lender fees: the APR is the interest rate.
- Lender fees that count as a cost of borrowing: the APR is higher than the interest rate, by an amount that depends on the fees, the term and the size of the loan.
| Interest rate | APR | |
|---|---|---|
| What it measures | The rate charged on what you owe | The cost of borrowing (interest plus included fees) as an annual rate on the principal |
| Used for | Working out your payments | Comparing the cost of credit offers |
| When they are the same | When interest is the only cost of borrowing | |
| Disclosure | Stated with “the circumstances under which it is compounded” | Stated “if it differs from the annual interest rate” |
What the cost of borrowing includes
For a bank mortgage, the cost of borrowing is the interest or discount over the term plus the charges the lender requires: administrative charges, a lawyer or notary the lender requires you to use, broker fees the lender pays out of the loan, appraisals, inspections or surveys the lender requires, and insurance other than the excluded kinds. Mortgage default insurance, optional insurance, title insurance you buy directly, registry fees, prepayment penalties, discharge fees and default charges are left out. The APR is that cost as an annual rate on the principal, and equals the interest rate when interest is the only cost. Section 48 of the regulations lists the charges on each side:
| Included in the cost of borrowing (s.48(1)) | Left out of the cost of borrowing (s.48(2)) |
|---|---|
| Interest | Insurance on the loan if “the insurance is optional” |
| “Administrative charges, including charges for services, transactions or any other activity in relation to the loan” | “Charges for insurance against default on a high-ratio mortgage on real property” |
| A lawyer or notary “that an institution required the borrower to retain” | A lawyer or notary other than one the lender required |
| Broker fees, “if the broker’s fees are included in the amount borrowed and are paid directly by the institution to the broker” | Title insurance “if the insurance is paid for directly by the borrower” |
| Appraisal, inspection or survey “required by the institution” | Appraisal, inspection or survey “provided directly to the borrower” |
| Fees “to register documents or obtain information from a public registry” | |
| “Penalty charges for the prepayment of a loan” | |
| “Any fee to discharge a security interest” | |
| Insurance charges “other than those excluded” in s.48(2) | Insurance on the loan if “the borrower is its beneficiary and the amount insured reflects the value of an asset that is security for the loan” |
| Fees “to maintain a tax account” that are required for a high-ratio mortgage, or optional ones | |
| “Default charges” |
Mortgage default insurance is on the excluded list. It is disclosed separately: the disclosure statement shows “the amount of charges for insurance against default on a high-ratio mortgage on real property, if any.” The FCAC notes that the amount you borrow usually includes “mortgage loan insurance if your down payment is less than 20%”, so the premium is part of the principal and you pay interest on it at the mortgage rate. It raises your payment, but not the APR.
Example: a CMHC premium added to the loan. A $400,000 loan with 10% down (a loan-to-value of 90%) carries CMHC’s 3.10% premium for a 25-year amortization: $12,400. Added to the loan at an illustrative 4.50% over 25 years, it raises the monthly payment from $2,214 to $2,283, $69 a month more. The rate and the APR stay 4.50% because the premium is excluded from the cost of borrowing. The CMHC insurance page covers when insurance applies.
How the APR is calculated
For a mortgage (a loan other than a credit card or line of credit), section 47 sets the formula:
APR = (C ÷ (T × P)) × 100
- C is the cost of borrowing over the term (interest plus included fees).
- T is the term in years.
- P is “the average of the principal of the loan outstanding at the end of each period for the calculation of interest”, before that period’s payment is subtracted.
The APR “may be rounded off to the nearest eighth of a per cent” (0.125 percentage points). For a variable rate, the calculation uses “the annual interest rate that applies on the day that the calculation is made”, so a variable-rate APR describes today’s rate, not the rates you will pay later.
Example: what a $1,500 lender fee adds. Take a $400,000 mortgage at an illustrative 4.50% compounded half-yearly, 25-year amortization, 5-year term, and a $1,500 administration fee that counts as a cost of borrowing. Averaged over the 60 monthly periods, the principal outstanding (P) is about $376,904. The fee alone adds $1,500 ÷ (5 × $376,904) × 100 = 0.08 percentage points to the APR. A larger fee, a smaller loan or a shorter term adds more.
Comparing offers with and without fees
When one lender charges a fee and another doesn’t, the most direct comparison is the total of interest and fees over the term you are signing for.
Example: two offers on a $400,000 mortgage, 25-year amortization, 5-year term. Lender A offers 4.50% with no fee; Lender B offers 4.40% with a $1,500 fee. Rates are illustrative and compounded half-yearly.
| Lender A | Lender B | |
|---|---|---|
| Rate | 4.50% | 4.40% |
| Lender fee | $0 | $1,500 |
| Monthly payment | $2,214 | $2,192 |
| Interest over the 5-year term | $84,019 | $82,104 |
| Interest plus fee | $84,019 | $83,604 |
Over the term, Lender B costs $415 less than Lender A, interest and fee together. Swap in your own quotes: a bigger fee or a smaller rate gap can reverse the result.
The same check works for a lender who offers cash instead of charging a fee. The FCAC describes cash back as a feature that “allows you to immediately receive a portion of your mortgage amount in cash”, and warns that “usually, if you use the cash back feature, your interest rate is higher” and that the lender may ask you to repay it if you break the contract. Compare the extra interest over the term with the cash you receive; see cash-back mortgages.
Compounding and the APR
Compounding changes the effective annual rate, not the APR: when interest is the only cost, the APR is the annual interest rate. What the rules require is that the disclosure show “the annual interest rate and the circumstances under which it is compounded.” A fixed rate quoted compounded half-yearly and a variable rate compounded monthly are not on the same basis; how to calculate mortgage interest shows how to convert between them. A variable rate also moves with the prime rate, so its APR only describes the rate on the day it was calculated.
APR in advertising
When a bank advertises a mortgage’s interest rate, payment or a non-interest charge, the regulations make “the APR and the term of the loan” prescribed information for the ad, and “the APR must be presented at least as prominently as the prescribed representation.” If the APR or the term isn’t the same for every loan the ad covers, the figures must come from an example loan identified as “a representative example.” An APR above the advertised rate means fees are counted in the cost of borrowing.
What the APR doesn’t tell you
The APR leaves out costs that can be large:
- Closing costs outside the cost of borrowing: your own lawyer or notary, title insurance you buy directly, registration fees and land transfer tax. See the closing costs guides.
- Prepayment penalties if you break the mortgage early. See how mortgage penalties are calculated.
- Discharge fees when the mortgage is paid off or moved.
- What happens after the term: the APR covers the term, and the rate at renewal is unknown.
To find a lower rate in the first place, see how to get the best mortgage rate and the 5-year fixed rate comparison.
Related pages
Sources
The figures and rules on this page come from these sources, last checked against them between September 25, 2026 and October 2, 2026. How we check facts.
- Bank of Canada: Conventional 5-year mortgage rate (data series)
- Bank of Canada: Conventional 5-year mortgage rate (data series)
- Bank of Canada: Conventional 5-year mortgage rate (data series)
- Bank of Canada: Data table
- CMHC: CMHC Purchase
- CMHC: Home Start
- Financial Consumer Agency of Canada: How much you need for a down payment
- Justice Laws (Canada): Financial Consumer Protection Framework Regulations
- Justice Laws (Canada): Bank Act