When comparing Canadian mortgage habits, fixed rates are the most popular type of mortgage nationally. In total, about 70% of all outstanding mortgages are fixed rate. And the 5-year renewal option is the most popular, accounting for 60% of all mortgages. Fixed rates are, however, available in different terms ranging from 1 to 10 years. We compare them all in a single glance and then advise which term best suits your specific needs.
When you select a ‘fixed’ rate, you’re ensuring that your monthly payments remain the same over the entire mortgage term. The ‘term’ refers to the duration of your current rate, whereas your ‘amortization’ is the length of time it will take for you to become mortgage free.
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
In most cases, borrowers who want to know exactly what you have to pay towards your mortgage each month are attracted to fixed rates. Fixed rates are seen as a favourable option because having a fixed term in place means your mortgage payments will not change until your term expires. Selecting a fixed rate is like purchasing an insurance policy that guarantees your rate will not rise over your chosen term (1-10 years).
Fixed-rate mortgages are most popular among homebuyers and homeowners who are looking for a reliable payment schedule, manage a tight monthly budget, or are generally more conservative when it comes to finances. 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.
Popularity of the 10-Year Fixed-Rate Mortgage
The 5-year fixed-rate option is the clear term winner when it comes to fixed mortgages across Canada. But your decision should be based on more than popularity – taking into consideration your risk tolerance as well as your ability to withstand increases in mortgage payments. This is where our expert support is even more invaluable.
10-year terms tend to become more popular when rates are expected to continue rising over the long-term following an extended period of historically low rates. The hesitation for many in selecting a 10-year term, however, is that a decade is a long time to be locked into something. There’s no guarantee, after all, that you won’t want to move or even need to relocate over a10-year period because life happens.