Find Today’s Lowest 5-Year Fixed-Rate Mortgages

The most popular fixed-rate mortgage option is the 5-year term. At nesto, you can expect to receive the very best rate every time. Thanks to our advanced technology, we’re able to compare the market in seconds to find the most affordable mortgage while our commission-free experts provide you with unbiased support throughout the process.

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Key Takeaways

  • 5-year fixed rate mortgages are one of the most popular mortgage products available for Canadians
  • Fixed rate mortgages can provide a number of financial advantages, notably the consistency and predictability of their monthly repayments.
  • 5-year mortgage rates depend on a number of things, such as the government of Canada’s baseline interest rate, your lender, and other market factors.
  • We compare and offer some of the best 5-year rates available to Canadians.

Find The Best 5-Year Fixed Mortgage Rates

The latest mortgage statistics reveal that among all mortgages currently outstanding in Canada, about 70% of borrowers have selected a fixed rate. And, the 5-year term option is, by far, the most popular at 60%. Fixed rates are available in any term ranging from 1 to 10 years. Nesto compares your choices and advises which term best suits your unique needs both now and into the future.

When you have a ‘fixed’ rate, it means that you can expect zero fluctuation in your monthly payments – your rate will not change until your mortgage term expires. 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

Fixed mortgages are extremely popular for borrowers who are looking for the convenience of knowing exactly what you have to pay towards your mortgage each month. A fixed rate makes a lot of sense to conservative borrowers because selecting a fixed term guarantees your payments will never change until your mortgage term expires. Many people view a fixed rate as a type of insurance policy that guarantees your rate will not rise over the term of your choice (1-10 years).

Fixed-rate mortgages are the option of choice for homebuyers and homeowners who are looking for a reliable payment schedule, manage a tight monthly budget, or are generally more cautious when it comes to risk. 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 5-Year Fixed Mortgage Rates

The chart below shows the Bank of Canada’s historical rates for 5-year fixed terms since 1975.

Mortgage interest rates are closely related to the Bank of Canada’s baseline interest rate, and bond yields. Currently, rates for 5-year fixed rate mortgages are around the 3% mark.

Tip: Interest rate simply refers to the percentage of interest charged by any lender over the duration of a loan. However, there is an important difference between interest rates set by the bank, and interest rates set by the government of Canada. The government sets a baseline interest rate twice every quarter. As of February 2022, it is 0.25%. This is how expensive it is for your mortgage lender to borrow money from the government. Your lender will then set their own interest rate (e.g. 2.75%), to make a profit over the duration of the loan. Logically, when the Bank of Canada’s interest rate goes up, your lender’s rates will go up, since it becomes more expensive for them to borrow money. In reality, it’s a little more complicated, but this is generally the relationship you’ll see in the mortgage market over time.

Popularity of the 5-Year Fixed-Rate Mortgage

The 5-year fixed-rate option comes out on top in popularity for Canadians, but that doesn’t mean it’s always the best choice for every homebuyer or homeowner. 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.

Borrowers are most likely to select a 5-year term for the following three reasons:

  • They hear about the 5-year term so often that they’ve been conditioned to think this is always the best choice
  • Pricing is attractive because lenders can afford to lower rates when they’re able to lock someone into a term for 5 years
  • They decide not to go through the mortgage negotiation process more than once every 5 years

What drives changes in 5-year fixed mortgage rates?

Interest rates fluctuate based on something known as bond yields. A bond is an investment instrument sold by federal governments (as well as provincial and municipal governments) that pay a guaranteed, fixed level of interest until maturity. 

Interest rates have an inverse relationship to bonds, which basically means that as money becomes more expensive to borrow (i.e. interest rates go up), bond prices generally fall – and vice versa. Why? Because bonds pay the holder a fixed interest rate that becomes more attractive if interest rates fall. This, in turn, drives up demand and therefore the price of the bond. Conversely, if interest rates go up, investors will no longer see the value of the comparatively lower fixed rate paid by the bond, resulting in lower demand, and declining bond price as a result.

How does this relate to 5-year fixed rate mortgages? Generally, 5-year fixed rates follow 5 year bond yields, plus a spread set by the banks. Bond yields can change direction based on market sentiment and economic factors, like inflation, employment rates, and exports. While this won’t change your rate if you’re already locked into a 5 year term, it can change interest rates in 5 year fixed mortgages, generally.

Ultimately, when bond yields (i.e. the value of interest a bond produces) rise, funding mortgages becomes more costly for lenders, so they will generally choose to increase their advertised rate in turn to make a profit.

Frequently Asked Questions

Learning about 5-year fixed rate mortgages? Here are some of the most commonly asked questions Canadians are asking in 2022 about this hugely popular mortgage term.

What is a 5-year fixed mortgage rate?

A 5-year fixed mortgage rate is an interest rate (%) that is ‘fixed’ to be the same for 5 years (the length of the ‘term’). A mortgage has a much longer amortization period – often between 15 and 25 years – which represents the total amount of time a person will spend paying off the mortgage principal and interest. The ‘term’, on the other hand, is simply a length of time in which a certain interest rate and other conditions will be agreed to between borrower and lender. A 5-year fixed rate mortgage, therefore, refers to a 5 year term (within a much longer total amortization period) where the interest rate set will remain the same for 5 years. At the end of each term, often called ‘maturity’, you will need to either renew your mortgage with the same lender, choose a different mortgage, or choose a new mortgage and lender altogether. It is possible to complete your entire amortization period with a number of different mortgage terms, each with their own rates and conditions, and this will be based on your financial needs and situation around renewal time.

How are 5-year fixed rates set?

As we outlined earlier, lenders change their rates based on how expensive it is for them to find the capital to fund your mortgage. One of the main factors affecting how 5-year fixed rates are set is the 5-year bond yield market. Lenders use this to determine how much it will cost them to fund 5-year fixed rate mortgages, and will use the forecasted earnings they receive from government bonds to dictate how high or low they should set their rate. In essence, when you borrow a 5-year mortgage as a consumer, your lender is basically trying to make a profit on the bonds they purchase for the same amount of time. It’s also a matter of risk, since government bonds are 100% guaranteed, while mortgages aren’t. Mortgages can go unpaid or can default, and are therefore priced higher to compensate for the added risk.

What are the differences between fixed and variable rates?

In the context of mortgages, if a rate is fixed it means the interest rate charged (for example, 2.9%) will stay the same for the duration of your mortgage term. A variable rate, on the other hand, can fluctuate based on the market from month to month, and can therefore change throughout the duration of your term.

Fixed rates are generally chosen for their perceived security, since your payments will remain the same throughout the duration of your term. Fixed rate mortgages are also often chosen where a consumer anticipates that interest rates will increase during their term, so it is perceived as beneficial to lock in to a lower rate. Whether you successfully beat market rates or not, one of the main advantages of a fixed rate mortgage is that you’ll know exactly how much to budget for repayments for the entire duration of your term. Right now, rates are unlikely to drop any lower, and the Bank of Canada has signaled that they are likely to increase

A variable rate, on the other hand, can change over time. Variable rates are based on an underlying benchmark rate or index and are set by your lender. A key advantage of variable rates is that you could end up paying less than you would with a fixed rate when variable rates are low. For example, if the government lowers its baseline interest rate, those with variable rates are likely to see their costs go down, since their mortgage rate is closely related to underlying interest rates. Variable rates are less risky than a fixed rate for your lender, and are therefore often significantly cheaper when rates are lower. The drawback of a variable rate mortgage is, if rates increase, so will your mortgage payments. If rates increase considerably, those with fixed rate mortgages may be in a better position, since their rates won’t increase.

Is it a good idea to refinance a 5-year fixed mortgage?

The simple answer? It depends. Refinancing your mortgage is a great way to access the equity in your home, consolidate debt, or find a better rate if market interest rates change significantly and you’re still locked into an unfavorable fixed rate. You may also refinance if you’re moving home and want to break your mortgage term early. If you’re paying well over market rates in a fixed-term mortgage, you may be able to save money by refinancing, but be aware you’ll likely have to pay a prepayment penalty and, as with your original mortgage, will need to sort out an appraisal, title search, and pay other fees when buying a new home. If you’re using refinancing purely as a way to save money, you’ll need to weigh up what you save versus any additional costs like this. Otherwise, many Canadians choose to refinance a 5-year fixed mortgage to access equity, secure better rates, pay for renovations, or consolidate debts. It’s a good idea if you have a specific purpose in mind, and if it won’t cost you too much to do so.

Why compare 5-year fixed rates with nesto?

At nesto, we want to make finding the right mortgage quicker and easier. We show you the best 5-year fixed rate mortgages out there, saving you time, money, and energy. On top of this, our Advisors are trained mortgage professionals who can help you determine the best solution for your needs. Not only are you getting the best market rates available, you’re also getting total support, guidance, and the expertise to make the best decision for you.

If I see a 5-year fixed mortgage rate I like, how do I lock it?

If you’ve already found a fixed rate for a 5-year mortgage that you like, the next thing to do would be to consult a mortgage expert or professional to see if this fixed rate is applicable to you. The best way to secure your lowest rate is with nesto.

If you haven’t explored all of the 5-year fixed rate mortgages available, but you’ve seen similar rates you like, the next best thing to do is to get a quote. This would involve providing some basic information about why you need a mortgage (for example, is it a new mortgage? Are you refinancing, or just renewing your current mortgage?)

Depending on what you’re looking for, you can then provide basic information like the value of your home and downpayment, so that we can show a comparison of the best rates currently available.

Final Thoughts

Ultimately, there are a number of different mortgage solutions available for homeowners, and what you choose will be based on your financial needs. If you’re looking for a 5-year fixed rate mortgage, the best place to start would be exploring the best rates available according to your financial situation, and then getting a quote. Your financial situation will be unique, and will include where you’re at now and what your goals are in the future. By exploring the best rates available in line with your finances, you’ll have a better understanding of what you may qualify for, and how much it’ll cost over the course of your mortgage term.

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