Should You Choose a 3-Year or 5-Year Mortgage in Canada (2026)?

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Choosing between a 3-year and a 5-year mortgage in 2026 can significantly impact your overall financial well-being. After several years of sharp interest rate swings, shorter-term fixed-rate options are gaining traction as borrowers seek flexibility while maintaining payment stability and protection against rate changes. 

While 5-year terms remain the most popular among Canadians, we’ll compare how 3-year and 5-year terms are expected to perform in the current rate environment. The right choice may look very different for you depending on your financial circumstances and the purpose for the loan, specifically whether you are a first-time buyer, a homeowner renewing, or looking to refinance.

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Key Takeaways

• A 3-year mortgage offers greater flexibility and may result in lower interest costs.
• A 5-year mortgage provides longer-term payment stability and protection against rate increases.
• In a stable-rate environment, choosing the right term is about aligning it with your future plans, risk tolerance, and likelihood of selling or refinancing.

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Should You Choose a 5-Year or 3-Year Fixed-Rate Mortgage?

When deciding between a 5-year and 3-year fixed-rate mortgage, you should consider the current economic climate, potential interest rate changes over the term and the mortgage’s maturity date. In addition to current and future economic conditions, consider your personal circumstances, short and long-term goals, and risk tolerance today and over the next 3 to 5 years. 

If rates are expected to continue to rise, a 5-year mortgage term may be best. If rates are projected to fall, a 3-year mortgage term may be the best bet.

• If market conditions indicate rates will continue to rise, it may be wise to choose a 5-year term to ride out the possibility of higher rates. This will eliminate the need to renegotiate your rate in a few years, when interest rates could be much higher than the rate you lock in now. 

A longer mortgage term may also better suit your situation if you plan to keep your current home for 5 years or more. Choosing a longer term reduces the number of times you need to renegotiate rates and terms. 

• If market conditions indicate rates may decrease, it may be wise to choose a shorter mortgage term to reduce interest-carrying costs by locking in a lower rate after 3 years. 

A shorter term may also better suit your situation if you plan to sell your property within the next 3 years. You will pay a lower penalty to discharge your mortgage on a 3-year term, as the number of months remaining on your mortgage will be lower than with a 5-year term. 

• If market conditions indicate rates may remain relatively stable, which is expected this year, it may be wise to choose a mortgage term that is tied more to your future plans. 

When interest rates remain stable, the cost difference between a 3-year and 5-year fixed-rate mortgage tends to narrow, making factors like prepayment flexibility and future plans essential considerations. Borrowers with no immediate plans to sell or refinance who value certainty and predictable payments may still prefer a 5-year term. Those expecting to sell or refinance may prefer the flexibility of a 3-year term.

What Are Fixed and Variable Mortgages?

Fixed and variable are the two most common mortgage types borrowers can choose when securing financing for their homes. 

Fixed-rate mortgages lock in the interest rate for the entire term, which keeps your mortgage payment the same throughout. Early in the term, a larger portion of each payment goes toward interest, and as the mortgage progresses, more of that same payment is applied to the principal. This fixed-rate mortgage structure provides borrowers with predictable payments and financial stability since the payment remains fixed for the term.

Variable-rate mortgages (VRM) have interest rates that adjust with the Bank of Canada’s policy rate. With a variable-rate mortgage, you have a fixed mortgage payment, similar to a fixed-rate mortgage. However, the interest portion of the mortgage adjusts with changes to your lender’s prime rate. This means that if interest rates rise, more of your payment will go toward interest, with less going toward principal. If rates fall, the opposite will be true: more will go toward principal and less toward interest. 

Adjustable-rate mortgages (ARM) have payments that adjust with changes to the policy rate and your lender’s prime rate. With an adjustable-rate mortgage, your payment consists of a fixed principal portion and a variable interest portion that adjusts with changes in interest rates. If interest rates rise, your total mortgage payment will increase; if rates fall, your total mortgage payment will decrease.

3-Year Fixed-Rate Mortgages

A 3-year fixed-rate mortgage offers borrowers a fixed interest rate for 3 years. Your interest rate and monthly mortgage payments will remain unchanged throughout the 36-month term. Once your term ends, you will need to renew your mortgage and renegotiate new terms and conditions unless the balance is paid off in full. 

Pros and Cons of 3-Year Fixed-Rate Mortgages

A 3-year fixed-rate mortgage can offer interest savings compared to longer terms, especially when rates are expected to ease or remain relatively stable. Shorter terms give you the flexibility to revisit mortgage terms sooner, which can be helpful if you anticipate changes in income, plan to sell, or wish to refinance. A 3-year term offers the flexibility to adjust to market conditions while providing rate certainty, making it ideal for those who want rate protection today without committing to a term that’s too long. 

Pros

• The interest rate remains unchanged for 3 years, ensuring predictable payments for that period. 
• Lower prepayment penalty when compared to longer terms, should you break your mortgage before the term ends. 
• Greater flexibility to refinance, switch lenders, or adjust your mortgage strategy sooner without waiting 5 years.
• No need to worry about payments increasing if interest rates rise during the term. 

Cons

• If interest rates fall during the term, you cannot take advantage of lower rates without paying a prepayment penalty to break your mortgage. 
• The rate is fixed for only 3 years, and you may be more exposed to market changes. You may face a higher interest rate when your term ends. 
• Prepayment penalties for fixed-rate terms are generally higher than variable terms, meaning you will need to pay a higher prepayment penalty should you need to break the mortgage before the term ends, when compared to a 3-year variable term. 
• You will need to renegotiate the term and interest rate more frequently.

Should You Choose a 3-Year Mortgage Term?

A 3-year mortgage term can be a great option if you expect that interest rates may fall sooner rather than later. If you want or need the flexibility to make short-term plans, such as selling your home before the end of the term, choosing a 3-year term will help you avoid additional prepayment penalties.  

5-Year Fixed-Rate Mortgages

A 5-year fixed-rate mortgage offers borrowers a fixed rate and stable payments for 5 years. Many borrowers gravitate toward this term because it has long been positioned as the default option in Canada, reinforced by widespread advertising and longstanding lender messaging. To encourage longer commitments, lenders typically price 5-year fixed mortgages more attractively, offering larger rate discounts to secure mortgage clients for longer. This practice also reduces the likelihood that borrowers will switch lenders mid-cycle due to higher fees for breaking the mortgage.

Pros and Cons of 5-Year Fixed-Rate Mortgages

A 5-year fixed-rate mortgage prioritizes long-term stability by locking in an interest rate and monthly payments for a full 5 years. This longer term can be especially appealing when interest rates are expected to rise, as it protects against future increases and reduces the need to renegotiate in the near term. With fewer renewals, you face less exposure to short-term market volatility and can plan your finances with greater certainty. A 5-year term is often well-suited for those who expect to stay in their home long term and value predictability over flexibility.

Pros

• The interest rate remains unchanged for 5 years, providing long-term payment stability and predictable cash flow. 
• Protects against rising interest rates for a longer period, reducing exposure to short-term market volatility.
• Reduces the need for frequent mortgage renewal, simplifying financial planning.
• Often priced more competitively than shorter fixed terms, as lenders typically offer their best discounts on 5-year fixed rates.

Cons

• If interest rates fall during the term, you will be unable to take advantage of lower rates without a significant prepayment penalty to break the mortgage. 
• Prepayment penalties are often higher due to interest rate differential calculations, especially compared with shorter fixed-term or variable-rate options.
• Less flexibility to refinance, sell, or switch lenders without incurring higher costs or waiting for renewal.
• A longer commitment may be restrictive if personal circumstances change, even if rates remain stable, making it harder to respond to the evolving needs. 

Should You Choose a 5-Year Mortgage Term?

A 5-year mortgage term can be a great option if you expect interest rates to increase in the short term or plan to stay in your home for the long-term. This option is typically the best solution for most first-time homebuyers (FTHB), as it gives them additional time to adjust to setting aside money for new responsibilities, such as building a monthly budget that covers mortgage payments, property taxes, and utility bills, rather than simply paying rent.

Comparing 3-Year vs 5-Year Fixed Mortgage Rates

Selecting the right mortgage rate can make all the difference. It’s important to weigh your options and choose the one that best aligns with your goals. Comparing 3 and 5-year rates and terms against your short and long-term goals, risk tolerance, and financial situation can help you make the best choice.

FEATURE	3-Year Fixed Mortgage Rate	5-Year Fixed Mortgage Rate
PAYMENT STABILITY	Your payment remains unchanged for 3 years.	Your payment remains unchanged for 5 years.
INTEREST PREDICTABILITY	Predictable interest rate during the term.	Predictable interest rate during the term.
INTEREST RATE DIFFERENTIAL (IRD)PENALTY	Unable to take advantage of lower interest rates should they fall during the term without a prepayment penalty.	Unable to take advantage of lower interest rates should they fall during the term without a prepayment penalty.
EXPOSURE	Higher exposure to market changes.	Lower exposure to market risk.
RENEGOTIATION	Need to renegotiate mortgage rates and terms more often.	Need to renegotiate mortgage rates and terms less often.
FLEXIBILITY	More Flexibility over the short term	Less Flexibility over the short term
REMAINING TERM RISK	Lower prepayment penalty should you need to break your mortgage before the term ends.	Higher prepayment penalty should you need to break your mortgage before the term ends.

Frequently Asked Questions (FAQ) About Comparing 3-Year Versus 5-Year Mortgages in Canada 

Final Thoughts

When choosing between a 3-year and 5-year mortgage, the decision ultimately comes down to balancing certainty with flexibility. A shorter term can offer more options if you anticipate lifestyle changes, while a longer term can provide greater stability and insulate against near-term rate increases. 

Neither option is universally better or applies to everyone’s needs. The right choice depends on how long you plan to stay in your home, how comfortable you are with renewal risk, and how much value you place on predictability versus flexibility.

If you’re weighing your options between a 3-year or 5-year term, connect with a nesto mortgage expert who can help you build a mortgage strategy tailored to your unique needs and financial circumstances.

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Why Choose nesto

At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and the quality of their advice. nesto aims to transform the mortgage industry by providing honest advice and competitive rates through a 100% digital, transparent, and seamless process.

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Contact our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.

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