The combination and duration of 5-year fixed mortgage rates make them the most popular mortgage in Canada. It is therefore generally with this type of mortgage loan that future borrowers begin their research on mortgage rates. Ratehub.ca makes it easy to find the lowest 5-year fixed mortgage rates because we bring together rates from major banks, lenders, and credit unions for you, free of charge, in one place.
5-Year Fixed Mortgage Rates: Highlights
- Mortgage rate is fixed for a term of 5 years
- 72% of Canadians borrowed at a fixed mortgage rate in 2020
- Fixed 5-year mortgage rates depend on the yield of 5-year government bonds.
Mortgage Rates Fixed, 5-Years (see all) +
What are the pros and cons of a 5 year fixed rate mortgage?
There are advantages and disadvantages to the 5-year fixed mortgage rate, which we will explain to you below. Here are some of the benefits of 5-year fixed rate mortgages:
- Risk protection: If you prefer not to take risks, a fixed rate mortgage allows you to determine the applicable rate and guarantees you peace of mind. Therefore, your rate, and therefore your mortgage payment, is locked in and will not fluctuate with changes in bond yields. This allows you to budget more accurately and gives you stability for the duration of your loan. In addition, in recent years, Canadians have been able to benefit from some of the best fixed mortgage rates offered in decades , although fixed rates have started to climb again since October 2021.
- Competitive rates: The 5-year mortgage is generally the most popular term for borrowers and the one to which lenders direct you in the majority of cases. The duration of this mortgage is a good compromise for people who want to buy real estate. Since this is a very popular rate offering where there is stiff competition, lenders are often very competitive when pricing these mortgages.
Nevertheless, borrowers also need to consider some drawbacks.
- Higher rates: To guarantee your fixed rate, your lender will charge you a premium. A historical analysis by Professor Moshe Milevsky of York University published in a landmark study in 2001 found that more than 90% of Canadian borrowers who kept a variable mortgage rate throughout the life of their loan paid less interest than those who kept a fixed rate.
- Mortgage termination penalties:Although a 5-year mortgage can give you peace of mind, an unforeseen event such as moving, job loss, illness or divorce could force you to break your mortgage and you may have to pay a high termination penalty. If you have a fixed rate mortgage, your penalty will be calculated based on the greater of the interest rate differential (IRD) and an amount representing 3 months interest on the amount you still owe. The interest rate differential penalty often turns out to be significant. As a result, terminating a fixed rate mortgage can be costly. On the other hand, if you have taken out a variable rate mortgage, the penalty will always be equal to three months of interest, thus making it less expensive to terminate your mortgage.
History of 5-year fixed mortgage rates
Reviewing mortgage rate history is a good way to understand which types of mortgages carry higher rates. It also makes it easier to understand whether we are in a period of rather low or rather high rates.
Popularity of 5-year fixed mortgage rates
The 5-year mortgage is generally the most popular term for borrowers. The 5-year period is in the middle of the range of terms offered, between one and ten years. The popularity of this type of loan therefore reflects a risk-neutral average. Major lenders also tend to promote this product. A further breakdown of loan terms reveals that 80% of mortgages have terms of five years or less.
What are the factors of variation of 5-year fixed mortgage rates?
In general, 5-year fixed mortgage rates follow the trend of the 5-year Canadian bond yield, plus a spread. Bond yields are determined by economic factors such as unemployment, exports or inflation.
As Canada bond yields rise, it becomes more expensive for mortgage lenders to raise capital to fund mortgages. Also, unless mortgage rates are increased, lenders’ profit margins shrink. The opposite phenomenon occurs when market conditions are good.
As for the spread between mortgage rates and bond yields, it is determined by mortgage lenders based on desired market share, competition, marketing strategy and general credit market conditions.
What is the best 5-year fixed mortgage rate for me?
In general, a fixed rate mortgage is a good choice if you prefer to play it safe. That way, you won’t have to deal with the stress of variable rate fluctuations if the prime rate goes up, which would cause your mortgage payment to go up. Besides the mortgage rate, there are a few other factors you will need to consider when looking for the right 5-year fixed mortgage rate for your needs.
- Prepayment options: Investigate prepayment options that your lender is willing to offer you. The more flexible your lender is with prepayment options, the faster you can potentially pay off your loan, which could save you thousands of dollars in interest charges. The main prepayment options include prepayment every month or on a lump sum basis. In the first case, you are authorized to increase the amount of your monthly payment to a percentage determined by your lender, which cannot however exceed 100%. For example, if your lender is flexible enough to allow you to double your monthly payment, you could theoretically pay off your mortgage twice as quickly. The second option,
- Mortgage Transfer: If you need to sell your home before your mortgage ends, many lenders will allow you to transfer your mortgage . Transferring a mortgage is using your current loan, with its rates and terms, to finance another property. This operation allows you to avoid canceling your mortgage loan. You should ask your lender if your mortgage is portable, especially if you think you will have to move before the end of your mortgage term. Note, however, that not all mortgages are transferable, and those that are often include specific conditions that you should find out about.
- Your situation: Before taking out a 5-year mortgage, you should think about your current and future personal situation. If you are likely to relocate, change jobs, or undertake any other life change that may affect your ability or desire to stay in the home you are buying, you should consider this when choosing your mortgage.
If you’re still not sure which mortgage product best suits your needs, it’s a good idea to speak with a mortgage broker . Consultations are free, and you will leave with expert advice, personalized for you.