About 70% of all mortgages across Canada are fixed rate. And, the 5-year renewal option is the most popular at 60%. Since fixed rates are available in any increment ranging from 1 to 10 years, it’s our pleasure to weigh your options and advise which term best suits your unique needs.
When you secure a ‘fixed’ rate, this means that your rate will stay the same throughout the term of your mortgage. The ‘term’ refers to the duration of your current rate, whereas your ‘amortization’ is the length of time it will take to completely pay off your mortgage.
It’s important to understand that all borrowers must meet the standards of approval for the Bank of Canada’s benchmark 5-year fixed qualifying rate even if you choose a mortgage with a lower interest rate and shorter term. This benchmark is in place to both reduce the lender’s risk as well as ensure you can comfortably afford to pay back your mortgage.
Benefits of Fixed-Rate Terms
If you enjoy the convenience of knowing exactly what you’re going to pay each month towards your mortgage, a fixed rate definitely makes sense because you have a fixed term in place where your payments will never change. In fact, you can think of a fixed rate as insurance that your rate will not rise over the term you’ve selected (1-10 years).
Fixed-rate mortgages appeal to homebuyers who are looking for a dependable payment schedule, manage a tight monthly budget, or are generally more conservative. For instance, young families with large mortgages relative to their income may be better off opting for the peace of mind that a fixed rate provides.
Historical 1-Year Fixed Mortgage Rates
The chart below shows the Bank of Canada’s historical rates for 1-year fixed terms since 1980.
Popularity of the 1-Year Fixed-Rate Mortgage
While the 5-year fixed-rate option is undoubtedly the most common choice selected by Canadian homeowners, it’s not always the best for everyone. Your decision should be based on your risk tolerance as well as your ability to withstand increases in mortgage payments. This is where our expert support is even more invaluable.
Often times, borrowers select a 1-year term for the following three reasons:
- You’re planning to ‘flip’ the house – buy low, complete renovations and turn around and sell at a higher price to make a profit
- You believe rates will fall within the next year
- You’re not sure if you want to remain in the home beyond a year. If you opt for a longer term and end up breaking your mortgage, you’ll face penalties