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.
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