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Find Today’s Lowest Rates for Fixed-Rate Mortgages

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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 will need to 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 Rate History

Let’s see how these different fixed rate mortgages have been priced historically. Below are historical bank-posted mortgage rates in recent years.

*Most Recent Prime Rate Shown
Source: bankofcanada.ca

How are fixed rates determined?

The most important factor determining the fixed rate at any time is the Government of Canada Bond yields, 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. This is why lenders do not move rates in tandem unless a big change occurred in the bond market, such as 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 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, if you’re planning on moving to another city in a few years, then a 5-year fixed rate may not be the best choice. 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 perhaps looking at a longer-term fixed rate might be better for your situation. But 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 between offering more options or keeping their most popular option competitive.

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 the time of 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 rate provides that stability. 

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

And 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.

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 quite 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 mortgage amounts to 3 months worth of interest payments, which is the case for a vast majority of 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 reach out to their lender before moving ahead 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 Difference in loss of collected interest if 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 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 $319K remaining balance and her lender is charging her an interest of Prime less 0.78%Adel has a fixed mortgage with $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 in 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 interest which is the same as Nakita.
These are the three standard methods used for calculating discharge penalties – varying by lender and specific restrictions placed on each type of mortgage.

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 ended up charging almost $10K more on IRD penalty due to their implied discount from their posted rate.

Big 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%
Penalty is greater of 3 Months Interest or IRDIRD Penalty$11,700$1950
3 Month Interest Penalty$975 $162.50 

The discharge penalty is substantially lower through the nesto IRD discharge penalty calculation due to a much smaller IRD.