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Current Fixed Mortgage Rates in Canada

For Tuesday, June 25, 2024:

The national average 2-year fixed insurable mortgage rate in Canada is 6.76%, while nesto’s lowest 2-year mortgage rate is

The national average posted 5-year conventional fixed mortgage rate is 6.84%. The lowest 5-year fixed rates are typically reserved for insured prime lending, with nesto at and the national 5-year insured average sitting at 5.37%.

The national average 4-year fixed insurable mortgage rate in Canada is 5.75%, while nesto’s lowest 4-year mortgage rate is .

The national average posted 5-year conventional fixed mortgage rate is 6.84%. The lowest 5-year fixed rates are typically reserved for insured prime lending, with nesto at and the national 5-year insured average sitting at 5.37%.

The national average 7-year fixed insurable mortgage rate in Canada is 6.43%, while nesto’s lowest 7-year mortgage rate is .

The national average 10-year fixed insurable mortgage rate in Canada is 7.14%, while nesto’s lowest 10-year mortgage rate is .

Find The Best Fixed Mortgage Rates

What are fixed rates?

A fixed rate mortgage means you will have a fixed payment with a set amount going to principal and interest over your term. Your term is set for specific years you have locked your fixed rate.

Once your term ends, you must renew your mortgage for a new term with a new rate. There may be many terms in the life of your mortgage – known as amortization. The new rate and term will depend on your circumstances and choices.

Average Bank Posted Mortgage & Prime Rate History

Let’s go back in time. Here’s a historical overview of changes to the posted and prime mortgage rates in Canada since 1980.


Source: bankofcanada.ca

How are fixed mortgage rates determined?

Bond yields directly influence fixed-rate mortgages, meaning a specific term on a fixed-rate mortgage will closely follow the movement of similar terms on bond yields.

The bond market significantly impacts fixed mortgage rates in Canada, as banks use it to determine their mortgage rates. Banks use investments like mortgages and Government of Canada bonds to make profits, but the two have significant differences. Bonds provide a no-risk opportunity for banks, guaranteeing at least a minimal profit while requiring no upfront cost. On the other hand, lending money for a mortgage carries a much higher risk for banks, involving costs for approval and setup, and there is no guaranteed profit. Banks calculate fixed mortgage rates based on the interest rates they’re receiving from their investments in bonds. 

The spread is the difference between your fixed mortgage rate and the bond price. The spread or markup between fixed mortgage rates and bond yields can vary, either widening or narrowing, depending on various economic factors. These factors include the banks’ assessment of future risks such as mortgage defaults, origination and servicing costs, as well as their profits. Their profit is limited to the supply and demand of money and, therefore, liquidity in the market. Charter banks must raise their mortgage rates reasonably to remain competitive.

Lenders compete for your mortgage business, so the spread between rates is inconsistent across all of them. Each lender determines their bottom line and may lower rates further if they have the flexibility. Charter banks, which offer a range of investment products, lack the flexibility to offer lower rates. Therefore, a more profitable bond market with higher bond yield will usher lower rates on your fixed mortgage. 

Lenders are quicker to raise their fixed mortgage rates and slower to lower them as bond yields fluctuate. That’s because they want to ensure their costs cover their risks during periods of volatility in the bond market.

How are bond prices determined?

Let’s use a hypothetical example of a 5-year bond with a 4% coupon rate to understand how bond prices are determined. When the overall market interest rate rises from 4% to 5%, newly issued bonds will have higher yields. A higher yield on newly issued bonds makes existing 4% bonds less appealing, and their prices decrease. These lower-yielding bonds would need to be sold at a discounted price to entice investors.

On the other hand, if the market interest rate falls from 4% to 3%, the 4% coupon bond becomes more attractive compared to newly issued bonds. As a result, its price increases, and it would be sold at a premium. Buyers would need to offer a higher price to compensate sellers for giving up the opportunity for higher yields on their bonds.
The relationship between bond prices and yields is inverse: bond prices drop to attract buyers when yields go up. Conversely, when yields go down, bond prices rise to compensate sellers for giving up higher yields on their bonds.

What factors affect fixed mortgage rates in Canada?

The most important factor determining the fixed rate at any time is the Government of Canada Bond yields and, more importantly, their complementary bond term. Fixed rates align with government bond yields with the same term – the lender will tack on the additional premium called the spread. 

The spread or premium added to the bond yield makes up any fixed mortgage rate. Mortgage rates will differ between lenders due to their spread. The lender determines their spread based on such variables as their desired market share, competition, marketing strategy and general credit market conditions. These variables indicate risk to the lender on a specific mortgage portfolio. 

Therefore, rate differences between 2 clients with the same mortgage and LTV might exist if one client has a credit score of 650 while another has a credit score of 720. Or if one person buys a property in a large city and another in a rural area. Why? There is a risk that the lender may not as easily be able to resell the rural property in case of default. Alternatively, the spread could be higher if the lender is new to the market without as much volume being funded or if their overhead costs to run the business – such as leases on brick-and-mortar stores and branches – are higher.

Government Bond yields update daily but don’t impact fixed rates daily with each lender. The reason depends on how much money a lender has reserved (bought) with a specific bond yield. Lenders can assess the risk of lending money daily, weekly or monthly, which will affect their spread. Lenders do not move rates in tandem unless a big change occurred in the bond market, such as at the start of the pandemic when the long-term financial outlook was severely affected.

Currently, 70% of Canadian homeowners choose a fixed rate; moreover, more than 60% choose a 5-year term for their mortgage renewal – making the 5-year fixed rate the most common choice for mortgages in Canada. This is not always the best choice for everyone, and it is recommended to have a professional mortgage expert guide you through this very important decision.

How to find the best fixed rate for myself?

When it comes to finding the best fixed mortgage rate, a mortgage expert will consider your risk tolerance, personal preferences, long and short-term goals and circumstances to help you decide on the most suitable solution. Also, having a good assessment of the market outlook is important. 

All of these factors play important roles in your decision-making. For example, a 5-year fixed rate may not be the best choice if you plan to move to another city in a few years. Conversely, if you know that inflation is trending up and the market cycle is expected to be five years, but fixed rates are still low, then looking at a longer-term fixed rate might be better for your situation. However, the most appropriate solution will be based on your circumstances and risk. Circumstances include that you’re willing to live in the same property for more than 7 years and risk in that you’d rather pay a higher rate on the 7-year fixed rate to have the peace of mind that your payment is fixed throughout the whole market cycle.

Fixed-rate terms are offered for 1-year, 2-year, 3-year, 4-year, 5-year, 7-year and 10-year. Not every lender can offer each term as they want to stay competitive in the market with their offers. Lenders must balance offering more options or competitively keeping their most popular option.

It’s important to understand that all borrowers must meet the Federal standard approval guidelines and be stress tested. Stress testing means qualifying on the greater of the Bank of Canada Benchmark Rate or the contract rate plus 2%, regardless of the actual rate or term on the mortgage contract. This stress test is in place to reduce the lender’s risk and ensure you can comfortably afford to pay back your mortgage should rates be higher at your next renewal.

Fixed Rates Allow for Predictable Budgeting

The ability to predict expenses, especially ones that are as sizeable & consequential as housing, is something many prefer in uncertain times. A fixed mortgage rate provides that stability. 

A fixed-rate benefits budgeting and offers financial stability, given that mortgage payments remain predictable throughout the term. Fixed rates are usually higher, but this is the premium to pay to assure peace of mind.

While variable mortgages have proven to be more cost-effective over time than fixed mortgages, some people prefer the certainty of having the same payment throughout the mortgage term.

For a first-time home buyer (FTHB) who is getting used to all their new bills related to owning a home, it is recommended that they choose a fixed rate to provide some stability during the first term of their mortgage. By making their biggest monthly obligations (mortgage, condo/maintenance/strata fees and property taxes) static amounts, they can take the time to put together a financial plan and start to put aside some money towards their emergency savings.

Consumer Protections For Longer Fixed Mortgage Terms

The benefit of taking on a term longer than 5 years is that a lender can only charge you a penalty of 3 months’ interest after you surpass the 5th anniversary of your mortgage term (per the Interest Act). However, if you end your 6-year, 7-year, 8-year, 9-year, or 10-year fixed mortgage term before your 5th anniversary, the lender can calculate your prepayment penalty charge as the greater of 3 months’ interest or the interest rate differential penalty.

This key piece of legislation protects you from outrageously hefty mortgage penalties in the event you need to break your mortgage early while still offering you peace of mind with consistent and predictable monthly payments.

Hefty Penalties to Break Your Mortgage

Let’s talk about those annoying prepayment penalties

Prepayment penalties charged on an early mortgage payout before the end of its term can be quite substantial. You’ll find that even though the method to calculate the penalties may be the same between lenders; still, the penalty itself is still higher with one lender over another. This has to do with their posted rates – big banks will keep their posted rates higher than what they give out to their clients to keep the discounts higher. Higher discounts will create a higher penalty.

Many borrowers assume the penalty for breaking a mortgage amounts to 3 months’ worth of interest payments, which is the case for most variable-rate mortgages and some fixed-rate mortgages. Fixed mortgage penalties are calculated as the greater of the Interest Rate Differential (IRD) and 3 months’ interest on the current balance. 

The IRD calculation is responsible for huge penalties that we hear about borrowers paying to break their mortgages. In the following example, we will show you how to calculate your fixed rate penalty; however, we always advise clients to contact their lender before proceeding with a transaction that requires an early payout due to renewal/refinance or sale.

Confused? Here is an example of how various penalties are determined and calculated:

PenaltyPercentage of Balance3 Months InterestInterest Rate Differential (IRD)
DescriptionEqual to a fixed percentage remaining balanceEqual to 3-month interest on the remaining balance The difference in loss of collected interest if a lender were to re-lend at today’s rate for comparable term
Mortgage TypeFixed or Variable (usually on a restricted/limited option the lender offersVariable or Fixed Fixed only
FormulaRemaining Balance * Set Interest Rate Remaining Balance * Interest Rate / 12 * 3(Your original mortgage interest rate – Interest rate for a comparable similar term at your lender) * Remaining Balance / 12 * Number of months remaining on your term
SituationCharles has a restrictive mortgage with his lender, which charges a fixed interest rate of 3% on this remaining balance of $319KNakita has a variable mortgage with a $319K remaining balance, and her lender is charging her an interest of Prime less 0.78%Adel has a fixed mortgage with a $319K remaining balance and a rate of 3.67% with 23 months remaining. Her lender is currently advertising a 2yr mortgage at 4.89%
Calculation$319,000 x 3% = $9570$319,000 * 4.67% / 12 * 3 = $3724Prime being 5.45%(4.67% – 4.89%) * $319,000 / 12 * 24 = ($1404) 
AnalysisCharles will have to pay $9570 to break his mortgageNakita will have to pay $3724 as her mortgage is variable Adel has a negative penalty meaning that it’s to the lender’s benefit for Adel to pay off his mortgage so they can re-lend it at a higher rate. Adel will only pay 3 months of interest which is the same as Nakita.
For more details on different methods of calculation for prepayment penalties, check out our Mortgage Penalty Calculator.

The IRD calculation is responsible for those huge penalties you hear about borrowers paying to break their mortgages. Penalties vary from lender to lender, however, and there are different penalties for different types of mortgages.

Deciding on a variable or fixed rate is a question of personal choice and risk appetite. Picking a rate or mortgage solution solely based on penalty is not the best course of action when choosing a financial product, especially one with a high value and a long time horizon. We would recommend speaking with a mortgage professional to assess any material risks that may pose a concern for you over the term of your mortgage.

Why Choose nesto over a Big Bank?

Mortgage discharge (prepayment) penalties remain a top 5 leading consumer complaint to bank ombudsman officials and financial regulators.

Why?

Most Banks have much higher “posted rates” on their website than the contract rate they offer their clients. When the penalty calculation is done, the bank will refer to the discount the client received from that posted rate and incorporate it into their penalty calculation, resulting in larger Interest Rate Differential (IRD) penalties on fixed-rate mortgages.

Mortgage finance companies such as nesto offer more advantageous mortgage discharge (prepayment) penalty calculations. nesto posted rates are our actual contract rates, thus resulting in a smaller IRD calculation and lesser discharge penalty.

nesto does not follow this same approach: Our posted rates are closer to actual contract rates, thus resulting in a smaller IRD and lesser discharge penalty. Below you will see how a Big Bank charged almost $10K more on IRD penalty due to their implied discount from their posted rate.

Discounted Interest Rate Differential (IRD) Penalty – The preferred method of calculation most commonly used by banks and credit unions.

Standard Interest Rate Differential (IRD) Penalty – The preferred method used by nesto, as well as other mortgage finance companies, virtual lenders and non-bank mortgage lenders, to calculate fixed mortgage rate penalties.

OccurrenceRateBig Bank nesto
Original Mortgage on 5yrs (Nov 1, 2019)Contract Rate2.69%2.69%
Original Term5 Years5 Years
Posted 5-yr Rate4.94%2.69%
Implied Discount on Posted Rate2.25%0%
New Terms on 3 years (Nov 1, 2021)Remaining Mortgage Balance$325,000$325,000
Years Remaining on Mortgage Term33
Reference Rate (3-yr Posted)3.74%2.49%
IRD CalculationContract Rate2.69%2.69%
Plus: Discount on Posted (Implied)2.25%0%
Less: Reference Rate (3-yr Posted)(3.74%)(2.49%)
Interest Rate Differential (IRD)1.20%0.20%
3-Month Interest PenaltyIRD Penalty$11,700$1950
3 Month Interest Penalty$975 $162.50 

For more details on different methods of calculation for prepayment penalties, check out our Mortgage Penalty Calculator.

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 non-commissioned salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and advice quality. nesto aims to transform the mortgage industry by providing honest advice and competitive rates using a 100% fully digital, transparent, seamless process.

nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.

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