The best five-year fixed mortgage rates in Canada 2022
5-year fixed mortgage rates in more detail
By Sandra MacGregor on December 8, 2022
After consecutive years of historically low interest rates in Canada, we are entering a period of rising rates, making the cost of borrowing, whether for a mortgage or a student loan, more expensive. The possibility of further rate increases may make the stability of a five-year fixed mortgage rate seem like a good option over a variable rate, especially for home buyers or those who are about to renew their existing mortgage. In fact, five-year fixed rate mortgages are the most popular mortgage product in Canada. However, like any financial product, they still have their drawbacks.
Before talking to a mortgage lender or broker, find out how they compare to five-year variable mortgage rates.
What is a five-year fixed mortgage rate?
As the name suggests, a five-year fixed rate mortgage has a mortgage term of five years, which is the length of time your mortgage contract remains in effect. In Canada, mortgage terms range from six months to 10 years, with five years being the most common term.
With a fixed rate mortgage, your mortgage interest rate is locked in for the duration of the contract. This means you can predict what your mortgage payments will be until your mortgage contract comes to an end and it’s time to renew it.
For this reason, fixed rate mortgages can provide a greater sense of security than variable rate mortgages. With a variable rate mortgage, the interest rate can fluctuate throughout the term. term. This flow occurs when lenders adjust their prime rates in response to changes Bank of Canada Overnight Rate. The prime rate is currently 5.45%.
Finally, fixed rate mortgages can be open or closed. While an open mortgage provides the ability to make additional regular or lump sum mortgage payments without penalty, these actions are financially penalized by a closed mortgage. Typically, closed-term mortgages come with lower interest rates because they offer less flexibility than open mortgages.
How to compare five-year fixed mortgage rates
The table at the top of this article provides an overview of the best mortgage rates offered by a group of Canadian lenders. If you’re looking for a new home mortgage, enter the home price, down payment amount, and location to see the best mortgage rates available. The tool can also be used to view mortgage rates for products with different rate types, such as variable rates, and terms, such as 25 years.
Using the green tabs at the top of the table, you can also view the following mortgage rates:
Mortgage renewal: If your mortgage term is coming to an end and you have an outstanding balance, you will need to renew your contract for another term. You can do this with your current lender or another, but it’s always good to shop around. To see mortgage renewal rates for a new five-year term, enter your current mortgage balance, remaining amortization, mortgage payment frequency, and location.
Mortgage refinancing: If you want to break your current mortgage contract and negotiate a new contract, this is called refinancing. You may want to do this to take advantage of lower interest rates or access the equity in your home. However, the decision to refinance should not be taken lightly, as you could end up paying significant penalties. If you want to see five-year mortgage rates on a mortgage refinance, enter your current mortgage balance, along with the amount of equity you want to access.
Home Equity Line of Credit (HELOC): It’s a revolving, pre-approved line of credit that lets you borrow against the equity in your home. Interest rates on HELOCs are generally lower than traditional lines of credit, but higher than those typically offered for variable rate mortgages. Money borrowed through a HELOC is repaid, with interest, in addition to your regular mortgage payments.
How are five-year fixed mortgage rates determined in Canada?
Five-year fixed-rate mortgage rates are strongly tied to the price of five-year government bonds. Banks rely on bonds to generate stable profits and offset potential losses from the money they lend out in the form of mortgages. When banks expect their bond earnings to rise, they lower their fixed mortgage rates, and vice versa.
Historically, fixed rates have tended to outpace variable rates, but there are a few instances where variable rates have outpaced fixed rates. This historical trend suggests buyers may end up paying more for fixed mortgages, especially during periods of falling interest rates.
However, when Canada inflation above the norm, increases in the Bank of Canada’s overnight rate, which lead to higher variable interest rates, are often not long in coming. At times like these, locking in a fixed mortgage rate could be a smart option for borrowers who want to avoid the fluctuations that come with variable rate mortgages.
The pros and cons of five-year fixed rate mortgages
- Competitive rates: Lenders know you’re shopping around and they usually offer comparable and lower rates for your business.
- Predictability: You know that your interest rate, and therefore your mortgage payments, will not change for the duration of the term. This stability can help you budget more easily.
- Opportunity to save money: If interest rates go up during your term, you could end up paying less than you would with a variable rate.
- Tougher penalties: The penalty for getting out of a fixed mortgage contract can be a little higher than with a variable mortgage. You may also be more limited in your ability to pay off your mortgage faster with additional payments.
- Ability to pay more interest: Historically, fixed rates have been more expensive than variable rates, with a few exceptions. In some cases, you could end up paying significantly more interest than with a variable rate, if market interest rates drop during your term.
- Higher cost: You will pay for predictability and peace of mind. When you compare fixed rates to variable rates, you will see that fixed rates can be slightly higher.
Is a fixed rate mortgage better?
Kim Gibbons, mortgage broker at Mortgage Intelligence in Toronto, says fixed and variable rates each have their pros and cons, so it’s crucial buyers consider whether they value stability over potential savings.
“When my clients try to decide whether to go with a variable rate or a fixed rate, I tell them that they really need to look at their risk tolerance and whether or not they have enough income or savings to provide a buffer to deal with a sudden change in rates,” she says. “If they’re going to lose sleep at night fearing that interest rates will go up and they have a limited budget that they cannot exceed, then a fixed rate is probably a better decision.If, however, they have a good income and a lot of savings set aside, they can better manage rate fluctuations.
“It really depends on each person’s circumstances,” adds Gibbons. “There is no one-size-fits-all solution.”
What happens when my mortgage ends?
At the end of your mortgage term, your mortgage agreement can be renewed. A few months before the end, your lender will send you a renewal statement which will include details of your remaining mortgage balance, your new renewal interest rate, your payment schedule and any fees that may apply. At this point, you can choose to renew your mortgage with your original lender or with a comparison store to get a better rate from another lender.
No matter which lender you decide to go with, it’s always worth reviewing the five-year fixed mortgage rates currently offered in Canada before deciding to renew or switch products or lenders.
Should you choose a five-year fixed mortgage rate?
When deciding if a fixed rate mortgage is right for you, you need to consider a number of key factors, including the historical performance of five-year fixed mortgage rates. Depending on what happens with market interest rates during your term, you may have to pay extra, but these extra costs could save you the stress of predicting the ups and downs of the economy and interest rate.
This article was first published on February 28, 2022. It was last updated on June 29, 2022.
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