Find the Best 5-Year Fixed Rates in Canada

Canada’s average insured 5-year fixed mortgage interest rates at big banks is 4.57%, while nesto’s lowest rate is .

_{Note: The average rate is calculated based on the posted rates of the six biggest lenders in Canada, which together make up over 70% of the retail mortgage market in the country. These six biggest lenders are the chartered banks Toronto-Dominion Canada Trust (TD), Royal Bank of Canada (RBC), Bank of Montréal (BMO), Bank of Nova Scotia (BNS), Canadian Imperial Bank of Commerce (CIBC), and National Bank of Canada (NBC).}

5-year fixed-rate mortgages are predicted to go down in 2024. 5-year fixed rates are determined based on 5-year bond yields plus a 1-2% spread added. We can look at the direction of the 5-year bond yield and what is forecasted to determine where 5-year fixed rates may be heading. Based on current forecasts, the 5-year bond yield is predicted to be around 3.2% at the end of 2024. This means we can forecast that fixed rates may end the year around 4.2% to 5.2% based on the spread added.  

Choosing between a 3-year or 5-year fixed-rate mortgage will depend on which option more closely matches your financial needs, short and long-term plans, and risk tolerance. 

You should choose a 3-year fixed-rate mortgage if you plan to sell your home in the next few years to reduce the prepayment penalty you will pay. You may also choose to go with a shorter term if you expect interest rates to fall so you can benefit from lower rates at your next renewal. 

If you are a first-time homebuyer (FTHB), you should choose a 5-year fixed-rate mortgage to provide stability and predictability with your mortgage payments. You may also choose a longer term if interest rates are expected to rise in the short term, helping you ride out any increases in rates you may realize when renewing more frequently.

A 5-year fixed mortgage rate is the percentage of interest you will pay on your mortgage balance. Since the rate is fixed, it will remain the same for the entire 5-year term.

A 5-year fixed mortgage offers the benefits of easier budgeting and stable, predictable mortgage payments for the next 5 years. If interest rates are predicted to rise within the next 5 years, a 5-year fixed mortgage can help you avoid higher interest rates as you will be locked into the same rate until the end of your term. Since the rate is fixed, your mortgage payment will remain the same for 5 years, making it easier to prepare a budget and plan.

A 5-year fixed mortgage locks you into a rate for a 5-year term. If interest rates fall during your term, you may miss out on the cost savings of having a lower interest rate. If you want to break the mortgage term early for any reason, prepayment penalties can be high. Prepayment penalties on fixed-rate mortgages are calculated as the higher of the interest rate differential (IRD) or 3 months of interest on the remainder of the mortgage term.

5-year fixed mortgage rates are determined based on the movements of 5-year Bank of Canada bond yields. 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. When you borrow at a 5-year fixed mortgage rate, your lender will add a spread to the bond yield based on the risks involved with your mortgage.

To apply for a 5-year fixed mortgage at nesto, answer a few questions or give us a call to speak with an agent to find your best mortgage rate. A mortgage expert will guide you through the process, explaining the features, benefits, and any restrictions to ensure that a 5-year fixed mortgage rate makes sense for your financial situation and needs.

5-year bond prices are determined based on their yields, which are influenced by monetary policy decisions, inflation expectations, investor sentiment, economic indicators, and geopolitical events. The relationship between bond prices and yields is inverse: bond prices drop to attract buyers when yields go up. When yields go down, bond prices rise to compensate sellers for giving up higher yields on their bonds. 

For example, if market interest rates rise from 4% to 5%, all newly issued 5-year bonds will have higher yields, making them more attractive to investors. Existing bonds sold with a 4% yield become less appealing, so their prices drop and are considered to be selling at a discount. 

If market interest rates fall from 4% to 3%, newly issued 5-year bonds have lower yields, making them less attractive to investors. Existing bonds sold with 4% yields become more appealing, so their prices increase and are considered to be selling at a premium.  

Pre-approvals and pre-qualifications will analyze your borrowing capacity and examine your income, debts, downpayment, and savings. This will then be compared to your total net worth minus what you have set aside for your downpayment and closing costs. This assessment typically occurs before you have found a property. Pre-qualifications do not come with a guaranteed rate. 

Some lenders will offer a pre-approval with a rate hold and attach a premium to the rate. Rate holds can provide peace of mind when shopping for a property if rates are anticipated to rise before you anticipate having an offer accepted on a property.

Lenders that offer the best rates typically only offer live rates, meaning you can only lock in a rate once you have accepted an offer on a property and apply for a mortgage. Speak with one of nesto’s mortgage experts to determine if a pre-approval or pre-qualification is most suitable for your home financing needs.

Depending on the rates offered, some lenders will hold your rate for a set amount of time, typically 60 to 180 days. This allows you time to find a property without worrying about interest rates increasing. Once approved for the mortgage, the lender will issue you a mortgage commitment to hold the fixed rate or the discount from their prime rate on a variable or adjustable mortgage.

Most lenders will add a premium to the rate they hold for you. The lender must set aside this money for you, which comes at a cost to them since they can only utilize those funds once you return and fund your mortgage. Some lenders will offer a quick close rate if the mortgage is funded within 45-60 days. This rate is a special offer with a limited supply of money at that rate.

The mortgage term is the time the mortgage agreement will be in effect. Mortgage terms typically range from 6 months to 10 years, with the 5-year fixed rate mortgage being the most popular term. The term is just one of the criteria lenders use when pricing mortgages.

Mortgage types include adjustable, variable, fixed, open, closed, standard charge or revolving home equity line of credit (HELOC) under a collateral charge. The type of mortgage you select will determine the interest rates you are offered. 

Open mortgages have higher interest rates than closed mortgages because they offer more flexibility in paying off the mortgage at any time without penalty. Fixed and variable mortgages will have different interest rates based on what influences changes to those rates. 

Variable rates are determined using the lender’s prime rate, based on the Bank of Canada policy rate plus a spread. Fixed rates are determined based on bond yields of corresponding maturities (5-year fixed rates will follow 5-year bond yields) plus a spread.

The downpayment amount will determine your loan-to-value (LTV) ratio and whether you must purchase mortgage default insurance. Insured and insurable mortgages typically have lower interest rates since mortgage default insurance lowers the risk to the lender if you default on mortgage payments. Uninsured mortgages usually have higher interest rates to price in the risk to the lender on these mortgages. 

Lenders assess your ability to afford a mortgage by examining your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios. GDS focuses on your housing expenses against your gross income, while TDS considers all your debts. For CMHC-insured mortgages, the standard ratios are 39% for GDS and 44% for TDS. 

Calculating your qualifying mortgage payment is subjected to a stress test using the higher of your contract rate plus 2% or the minimum qualifying rate, which is currently 5.25%. The lower your qualifying ratios, the less risky you are to a lender. You will likely be offered more competitive rates if you have lower qualifying ratios.

If the property is used as a primary residence (owner-occupied), you will have access to lower interest rates than an investment property used as a rental. A property purchased as a primary residence with a second separate legally registered suite is considered an owner-occupied rental that will give you access to the same rates as a primary residence.

Refinances are considered uninsured transactions, which carry a higher risk than renewals. Lenders will price refinances higher based on the risk associated with the specific mortgage. 

Converting a mortgage from a variable to a fixed rate is also known as an early renewal. Lenders typically only offer undiscounted rates if you convert your variable or adjustable rate into a fixed mortgage rate. 
Porting a mortgage transfers your current interest rate and mortgage balance to a new property. If you require a higher mortgage than the balance you are paying out and porting, you are provided with an interest rate based on a weighted average between your interest rate and current rates.

While the amortization may not directly affect your interest rate, it will impact the amount of interest you pay over the life of your mortgage. A shorter amortization will help you save on interest-carrying costs, though mortgage payments will be higher. A longer amortization will lower mortgage payments but come at the expense of more interest over the life of the mortgage.

The best rates are reserved for borrowers with excellent credit scores. You’ll typically have access to the lowest prime lending rates if you have excellent credit. You may need to look into alternative lenders at higher interest rates if you have poor credit.

To qualify for prime lending and access the best rates, you need proof of stable income that can be verified through paystubs, letters of employment or T4s if employed with an employer. For self-employed or incorporated individuals, you may require, at minimum, the Business Registration or Articles of Incorporation, Notice of Assessments (NOAs) T1 General and 3 months of business/corporate/individual bank account histories.