Fixed rates are the most popular type of mortgage selected by Canadians from coast to coast. In fact, recent statistics state that about 70% of all outstanding mortgages are fixed rate. 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 all your choices in a single snapshot of the market and then advise which term best suits your unique needs.
When you select a ‘fixed’ rate, this means that there will be no 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 well aligned with borrowers who are most comfortable with 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 a fixed term guarantees your payments will remain the same until your mortgage term expires. In essence, a fixed rate is like having an insurance policy in place that guarantees your rate will not rise over your selected term (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 risk averse 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 6-Year Fixed-Rate Mortgage
While the 5-year fixed-rate option comes out on top in popularity for Canadians, 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.
6-year terms are not very common among those who select a fixed rate. Opting for a 6-year fixed-rate mortgage often coincides with personal plans that make this an ideal choice.