As a whole, Canadians are fairly conservative when it comes to their finances. That’s why there’s little surprise that fixed rates are the most popular type of mortgage selected by Canadians. In fact, about 70% of all outstanding mortgages are fixed rate. The 5-year renewal option is the most popular, accounting for 60% of all mortgages.
But, did you know that fixed rates are available in different terms ranging from 1 to 10 years? We compare all your choices in a single glance and then advise which term best suits your specific needs.
When you choose a ‘fixed’ rate, this means that your monthly payments will remain the same throughout your 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
Fixed mortgages are well suited to 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. Selecting a fixed rate is like taking out 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 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 7-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.
7-year terms are not very common among those who select a fixed rate. Choosing a 7-year fixed-rate mortgage often coincides with personal plans that make sense to align with the mortgage term.