What are 5-year fixed mortgage rates?
In a 5-year fixed mortgage, mortgage rates are secured over a term of five years. This shouldn't be confused with the mortgage's amortization period, which in Canada are generally around the 25 year mark but may be as long as 40 years depending on the lender and whether or not the mortgage requires CMHC insurance.
Once the five-year term has run its course, mortgages automatically become adjustable-rate, or variable-rate, mortgages unless homeowners choose to renew at the current fixed mortgage rate.
Mortgage Stats in Canada
- As of 2023, 75% of Canadian mortgages are fixed-rate
- Most Canadians hold mortgages with amortization periods over 25 years
- As of Nov 2022, 0.15% of mortgages in Canada were in arrears
- 66.5% of Canadians own their own homes in 2021
- The prime rate in Canada as of Feb 2023 is 6.70%%
Bank of Canada
Compare 5-Year Fixed Mortgage Rates
As of August 2020, 5-year mortgage rates in Canada range from about 1.84% to 4.74%. The rate you're offered by your financial institution depends on a variety of factors, including the bank's standard rate and your credit history. In some cases posted rates may be higher (or lower) than the rate your bank or mortgage lender is able to offer you. It's always best to ask if your lender can reduce their initial offer and provide you with a better rate when signing on for a 4-year fixed mortgage.
What Drives Changes in 5-Year Fixed Mortgage Rates?
In Canada, lenders secure fixed mortgages with Government of Canada bonds and as such, the yields from these bonds are the biggest factor in determining fixed mortgage rates. Bond yields are primarily affected by economic growth and inflation across the country.
Pros of 5-year Fixed Mortgages
The biggest pro to having a 5-year fixed mortgage is that interest rates, and therefore mortgage payments, remain the same for five consecutive years. This makes it easier to plan and budget accordingly and holds minimal risk for homeowners.
Downsides of a 5-Year Fixed Mortgage
While the reliability of a 5-year fixed mortgage is an important deciding factor for most Canadian families, it does come with its downsides. At the end of the five-year term, rates could increase dramatically and for some Canadians, this could affect the affordability of their home. Additionally, fixed rates are typically higher than adjustable or variable rates offered by most financial institutions.
5-Year Fixed Mortage Rates vs. Longer-Term Mortgage Rates
A five-year fixed mortgage rate is appealing to many Canadians thanks to its reasonable interest rates. However, there are advantages to selecting mortgages with longer terms. In Canada, the maximum term for securing a mortgage rate is 10 years and there are some advantages to selecting a longer term. Specifically, a 10-year mortgage term means you're protected against adverse rate fluctuations for a longer duration. However, if you decide to sell your property before the term expires, you may be subject to large penalties for breaking the mortgage before the end of the term. This is why so many Canadians opt for the lesser commitment of 5-year fixed mortgage rates.
How Much Can You Save Comparing 5-Year Fixed Rates
5-year fixed mortgage rates vary by several points depending on the lender and that's why it's so important to take time to compare rates and shop around. Working with a mortgage broker is often the best way to do this, as brokers have access to a variety of rates from different lenders across the country. By finding a lender with a lower rate, you may be able to save thousands of dollars on the purchase of your home.
The Difference Between Fixed and Variable Rate Mortgages
The biggest difference between a fixed-rate mortgage and a variable-rate mortgage is the monthly payment you'll make on your mortgage. While a fixed-rate mortgage means that your interest and monthly or bi-weekly mortgage payments stay the same for the duration of your mortgage term, variable-rate mortgages change over time. Payments may change every few months to reflect current Bank of Canada interest rates. With a variable rate mortgage, interest rates are lower than fixed mortgage rates; however, in the event that rates increase drastically due to changes in the economy, homeowners may find themselves eventually paying more than they would have if they'd locked in their rate on a fixed term.
What is a Rate Hold?
Rate holds can be applied to variable or adjustable-rate mortgages for a short period of time. Using rate holds, homeowners can lock-in their mortgage rate temporarily to avoid an increase in their mortgage payments. Typically, rate holds can be applied for a period of 30 to 60 days; however, some lenders may allow rate holds of up to 120 days.
Why Compare 5-Year Fixed Mortgage Rates with My Rate Compass?
Rate Compass is an impartial, unbiased hub of information with current, up-to-date mortgage rates from brokers and major banks across Canada. To find reliable information about mortgages, including accurate posted rates, use Rate Compass to research your options before selecting a mortgage lender.
Frequently Asked Mortgage Questions
What is a Mortgage?
A mortgage is a special type of loan that is issued by banks or other mortgage lenders to cover the costs of your home. Unless you are incredibly wealthy, most homeowners have a mortgage on their home. There are several mortgage types and a handful of different term lengths designed to meet the needs of all lending applicants. While the idea of a home loan seems simple, it can be quite complicated when you dig into the specifics, but the following questions help simplify mortgage terms so you can wade through the process and secure a good mortgage on your home.
How Does a Mortgage Work?
A mortgage includes the actual loan amount and the interest that you will pay on a monthly basis when you make your payments. The lender makes their money off the interest they charge you. Outside of the actual cost of your home, the interest you pay a lender is the largest cost associated with a mortgage. The best mortgage deal is one that offers easy repayment combined with low-interest rates.
What are the Different Types of Mortgage?
There are two major types of mortgage loans: fixed-rate and variable. A fixed-rate mortgage means that your interest rate is set upfront based on current market conditions and will not change over the life of your mortgage regardless of economic conditions. Many people choose a fixed rate because they want to ensure their monthly payments remain stable and affordable. In addition, if mortgage rates are currently low, this is an excellent way to lock in a great mortgage rate.
A variable mortgage on the other hand has an interest rate that is based on economic conditions. Lenders can charge variable rates based on the current market conditions. Thus, when interest rates are low your monthly mortgage payments will be low, but if they are high your monthly payments will increase. Variable mortgages are usually better for homeowners with enough financial cushion to absorb larger payments when they occur.
What is the Difference Between a Mortgage Term and an Amortization Period?
Your mortgage term is the amount of time that you are locked into a contract with a lender. This contract locks you into the lender, a certain mortgage rate, and all conditions that were outlined by your lender upfront. The mortgage amortization period on the other hand is the entire length of your mortgage. Thus, you may be locked into a certain rate with a lender for five years, but have a mortgage that will not be paid off until 25 years have passed.
What is a High-Ratio Mortgage?
If you cannot afford to pay at least 20% down on your home purchase, then you are considered a high-ratio mortgage lender. In this case, you must qualify for mortgage insurance or you will not be approved for a mortgage. In Canada, mortgage insurance for high-ratio mortgage holders is provided by CMHC, Genworth, or Canada Guaranty.
What is the Difference Between Open or Closed Mortgage?
An open mortgage means that you can pay off your mortgage at any time and not face any penalties. A closed mortgage on the other hand will result in penalties if you choose to pay it off prior to the end of your mortgage term.
What Percentage Should I Give as a Down Payment?
Most banks prefer at least 20% down, but if you cannot afford 20% down then you can take out a high-ratio mortgage with approval from one of the three major Canadian mortgage insurers.
How Long do You Repay a Mortgage?
Mortgage terms differ depending on monthly mortgage payments. In general, shorter terms mean less interest and overall lower costs, but if you cannot afford high monthly payments then a long-term mortgage may be the best choice. The most common mortgage term in Canada is a 5-year term with a 25-year amortization period.
What is the Best Mortgage Loan Type for Me?
Before choosing a variable or fixed mortgage you need to carefully look at your monthly budget. If you have fixed expenses and a fixed income, then a fixed-rate mortgage that is stable and predictable will likely be the best choice for you. If you have fluid income and the ability to accommodate fluctuating payments a variable rate mortgage may help you save during periods in which rates are low.
How Do I Compare Current Mortgage Rates?
The best way to compare mortgage rates is by utilizing an online comparison website like Trust My Rate Compass. We provide mortgage rates from all major and small lenders across the country. All of our rates are updated in real-time, so our customers always have access to current rates.
How Much Can I Borrow for a Mortgage?
The amount you can borrow for a mortgage is dependent on your debt to income ratio. This ratio looks at how much income you bring in each month (along with any accessible assets) and then compares this amount to how much debt you have currently incurred. The amount of free income that remains is used to configure how much you will be pre-approved for. Banks measure risk when offering mortgage loans to customers, so you need to show you have the financial resources to pay for a mortgage before the lender will offer you a higher amount.
How Do I Choose a Mortgage Lender?
If you are working with a mortgage broker, they will match you with the mortgage lender that will grant you the best mortgage rate based on your credit history and income. If you are not working with a mortgage broker, working with a comparison website like Trust My Rate Compass can help you narrow down mortgage lenders to find one that offers a low rate based on your circumstances.
Which Banks Have the Best Mortgage Rates?
It is impossible to predict which banks have the best mortgage rates as this answer will change based on your financial profile. Using a comparison website is the best way to receive tailored results so you can figure out the best mortgage lender for your personal situation.
How Can I Save on Mortgage Interest Rates?
If you do not like the mortgage interest rates you are offered, you can continue to shop around for better rates. Comparing rate offers daily with My Rate Compass is a great way to trace whether rates are increasing or decreasing across the country. Sometimes small lenders offer more attractive rates than the larger lenders because they need to increase their profile, and we can help you find them. If your interest rate offers are too high overall, it may be best to stop back from the mortgage process and work on improving your credit score first. The higher your credit score the lower your perceived risk, which means the easier it is to obtain great mortgage rates. During this time you may also want to work on saving money. Making a large down payment can also help reduce interest rates.
Should I Work with a Bank or Mortgage Broker?
You don't need to have a mortgage broker to secure a home mortgage, but if you are overwhelmed, unfamiliar, or don't want to spend time understanding the mortgage process a broker may be a good idea. The broker will walk you through the process of securing a loan and help alert you to any issues that arise along the way. They also can help you find the lowest mortgage rate out of the lenders he or she works with. In short, while you have to pay for their services, they do all the research and negotiate for you. If you want a low rate without any hassle, a mortgage broker may be a good choice.
On the other hand, if you're fairly familiar with the mortgage process and have a high credit score then you may skip a broker and head straight to the bank. Working directly with the bank is usually a better choice for financially secure applicants that don't expect to face many difficulties to arise during the lending process.
What are Prepayment Options?
Some mortgage loans allow you to prepay your monthly payments or pay off your loan early. If this is something you can see reasonably happening, you will want to make sure you choose a mortgage lender that does not have an early payment penalty tied into their loans. In most cases, paying off a loan early will help reduce interest costs.
What is a Mortgage Pre-Approval?
A mortgage pre-approval is usually the first step in securing a mortgage. During this process, the lender commits to offering you a specified rate for the next 120 days. This mortgage pre-approval is granted up to a certain amount at a certain rate and term so long as the financial information you provided does not change. While you do not always need a pre-approval, most sellers and real estate agents will require proof of a pre-approval letter before they take you seriously.
How to Get Approved for a Mortgage?
Lenders have a set of criteria that they carefully analyze before approving applicants for a mortgage. As mentioned, they approve applicants based on perceived risk. In general, a good credit score, solid income, and appropriate mortgage amount are the three key elements in securing approval. Shopping within your means will make you more likely to be approved versus attempting to upgrade to a home that is outside of your financial abilities.
Why Should I Compare Mortgage Rates?
Mortgage rates play a large role in how much you will end up paying in interest over the term of your mortgage. On average, securing a mortgage rate that is just .25% less than another has the potential to save you thousands of dollars. In general, the larger your mortgage amount and the longer your mortgage term, the more you can expect to pay in interest. Thus, everyone should be concerned with securing the lowest possible Canadian mortgage rate.