Is it better to choose a 2-year or a 5-year fixed-rate mortgage?

Whether a 2- or 5-year fixed-rate mortgage is better depends on your situation and where you think interest rates are headed. For example, suppose you plan to sell your home within the next two or three years (and there’s a possibility that you might not purchase another home right away). In that case, a 2-year term is the safer bet, as you will avoid a potentially costly penalty for breaking your mortgage early. If you plan to stay in your home but believe that fixed rates will continue to drop, a 2-year term might still be your best option. If you are satisfied with the 5-year rate or believe that rates might increase, a 5-year fixed-rate mortgage might be your best bet.

What happens at the end of a 5-year fixed mortgage?

At the end of your 5-year fixed mortgage, your loan will be up for renewal. In all likelihood, your mortgage lender will reach out to you in advance to inform you of your renewal options. You will have an opportunity to choose another term at the lowest rate you can negotiate. You can also pay off your mortgage in full or move it to another lender without being subject to a penalty. If you pay off or move your mortgage elsewhere, you will likely be subject to a discharge fee from your current lender.

Can you refinance a 5-year fixed mortgage?

Yes. Most lenders will allow you to refinance your mortgage in the middle of your term. However, you will likely need to maintain your existing interest rate on the funds you already owe to avoid paying a penalty. Any new money added to the mortgage will be subject to current interest rates. Your lender will likely add the new funds to your existing mortgage and blend the new mortgage rate with the old. You’ll continue to have a single mortgage payment, but the payment amount will likely change to account for the additional funds you’ve borrowed.

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5-Year Fixed Mortgage Rates

By Colin Graves

Last updated September 24, 2024

Compare the best 5-year fixed mortgage rates

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While lower interest rates might have more Canadians considering shorter mortgage terms, the predictability of 5-year fixed mortgage rates continues to make them a popular choice. We’ll help you figure out if a 5-year fixed mortgage rate is right for you.

The best current 5-year fixed mortgage rates in Canada

What is a 5-year fixed mortgage rate?

A 5-year fixed mortgage rate means your mortgage interest rate and payments will not change for five years. It offers stability for borrowers who want to ensure their payments will not increase during their mortgage term.

While the rate and term are fixed, you may be able to refinance a 5-year mortgage if you decide to move to a new home or require additional funds. However, if you choose to break your contract and pay off your mortgage during the term, you will be subject to a prepayment penalty, which could be significant.

How do I know if a 5-year fixed-rate mortgage is right for me?

A 5-year fixed-rate mortgage is ideal for borrowers who plan to remain in their home for at least five years and want to know that their mortgage rate and payments will not change during that time.

While variable mortgage rates have historically (but not always!) been lower than fixed mortgage rates, they carry more risk as rates fluctuate. All things being equal, borrowers who are less risk-averse or lack budget flexibility are usually better off choosing a fixed rate.

In fact, fixed-rate mortgages are the most common choice among Canadian homeowners. According to the 2024 report by the Canada Mortgage and Housing Corporation (CMHC), 69% of Canadians surveyed opted for a fixed-rate mortgage, with the 5-year term being the most popular.

Even if you choose a 5-year fixed mortgage rate, it doesn’t mean that you are stuck if you decide to sell your home and buy a new one before the term ends. Most lenders allow you to transfer your fixed-rate mortgage to your new property.

This is known as a “mortgage port.” While you must meet certain conditions, it provides flexibility to fixed-rate mortgage holders.

Compare the best mortgage rates with Homewise

Factors that influence 5-year fixed mortgage rates in Canada

Unlike variable mortgage rates, which fluctuate with the Bank of Canada’s prime lending rate, fixed mortgage rates are determined by bond yields of similar durations. For example, 5-year fixed mortgage rates are generally set 1% to 2% higher than the current 5-year bond yield.

Bond yields and fixed mortgage rates tend to be very low during periods of low inflation. This was the case for several years in Canada until the inflation rate began increasing sharply in the spring of 2021. Bond yields and fixed mortgage rates soon followed, reaching a peak in October 2023. Inflation has since eased, partly due to actions taken by the Bank of Canada, and bond yields and fixed mortgage rates have come down, somewhat.

Pros and cons of getting a 5-year fixed mortgage rate

The 5-year fixed-rate mortgage remains popular with Canadian homeowners, but it won’t be the best choice for everyone. If you’re currently shopping for a mortgage, you’ll want to consider the following pros and cons.

Pros

You can enjoy the predictability of a fixed-rate and payment for the entire term
Might be the better choice if you anticipate that rates will rise in the future
Most lenders allow you to port a fixed-rate mortgage if you sell your home. This is not the case with most variable-rate mortgages

Cons

If you break your contract early, you may be subject to a large prepayment penalty
Historically, fixed rates have been higher than variable rates in Canada
You may miss out if interest rates drop during your 5-year term

How to choose the best 5-year fixed mortgage rate

Are you considering a 5-year fixed-rate mortgage? If so, the following tips can help you secure the best possible rate.

1.
Compare different lenders’ rates and terms: When shopping for any new mortgage, it’s always good to compare rates and terms from several lenders. Don’t assume that your current bank or credit union will offer you the lowest rate.
2.
Consult with a mortgage broker: In your search for the best 5-year fixed mortgage rate, you may want to enlist the help of a mortgage broker. They have access to dozens of lenders and can help you secure the best mortgage for your situation. They also have the knowledge and experience to advise you on whether a 5-year fixed is in fact your best option.
3.
Don’t be afraid to negotiate: If you deal directly with the lender, don’t assume you are getting their best rate upfront. If you can show them a better offer from a competing lender, you may be able to negotiate a lower rate. Even the slightest discount can add up to thousands of dollars in interest saved over a five-year term.
4.
Maintain a strong credit rating: To secure the best possible mortgage rate, you must have a strong credit score. “A” lenders, like banks, credit unions and monoline lenders, typically offer the best rates. But they also have the most stringent approval requirements. You may not qualify with an A lender if you have poor credit or a low credit score. Thankfully, there are steps you can take to improve your credit score.
5.
Be aware of your future plans: Rate shouldn’t be the only consideration when choosing a 5-year fixed-rate mortgage. You should also consider your future plans, and the other features different lenders offer. For example, a portable mortgage can provide flexibility if you sell your home before the term ends. If you plan to pay your mortgage off ahead of schedule, you’ll want to consider different lenders' prepayment options, as some are more flexible than others.

Get the best mortgage rates with Homewise

Historical 5-year fixed rates in Canada

As illustrated in the above chart, 5-year fixed mortgage rates have generally remained higher than the 5-year variable and shorter 3-year fixed-rate terms over the past 10 years. While this can vary, as evidenced by the recent spike in 3-year fixed rates, banks tend to charge a premium to 5-year fixed-rate holders in exchange for guaranteeing their mortgage rate for a more extended period.

Is it better to choose a 2-year or a 5-year fixed-rate mortgage?

+

Whether a 2- or 5-year fixed-rate mortgage is better depends on your situation and where you think interest rates are headed. For example, suppose you plan to sell your home within the next two or three years (and there’s a possibility that you might not purchase another home right away). In that case, a 2-year term is the safer bet, as you will avoid a potentially costly penalty for breaking your mortgage early.

If you plan to stay in your home but believe that fixed rates will continue to drop, a 2-year term might still be your best option. If you are satisfied with the 5-year rate or believe that rates might increase, a 5-year fixed-rate mortgage might be your best bet.
What happens at the end of a 5-year fixed mortgage?

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At the end of your 5-year fixed mortgage, your loan will be up for renewal. In all likelihood, your mortgage lender will reach out to you in advance to inform you of your renewal options. You will have an opportunity to choose another term at the lowest rate you can negotiate. You can also pay off your mortgage in full or move it to another lender without being subject to a penalty. If you pay off or move your mortgage elsewhere, you will likely be subject to a discharge fee from your current lender.
Can you refinance a 5-year fixed mortgage?

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Yes. Most lenders will allow you to refinance your mortgage in the middle of your term. However, you will likely need to maintain your existing interest rate on the funds you already owe to avoid paying a penalty. Any new money added to the mortgage will be subject to current interest rates. Your lender will likely add the new funds to your existing mortgage and blend the new mortgage rate with the old. You’ll continue to have a single mortgage payment, but the payment amount will likely change to account for the additional funds you’ve borrowed.

Last updated September 24, 2024

Colin Graves Freelance Writer

Colin Graves is a Winnipeg-based financial writer and editor whose work has been featured in publications such as Time, MoneySense, MapleMoney, Retire Happy, The College Investor, and more. Before becoming a full-time writer, Colin was a bank manager for over 15 years.

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