Find the best 3-year fixed mortgage rate

While 5-year fixed mortgages remain the most popular mortgage term in Canada, borrowers’ interest in 3-year terms increased following the rapid rise in borrowing costs between 2022 and 2023. As mortgage rates climbed, many borrowers became hesitant to commit to a longer-term mortgage, preferring a shorter term that would allow them to reassess their options sooner. Today, 3-year fixed mortgages continue to appeal to homeowners who want predictable payments without committing to the longer horizon of a traditional 5-year term.

Quick facts about 3-year fixed mortgage rates

• Your interest rate remains unchanged for the entire 3-year term.
• 3-year fixed mortgage rates are primarily influenced by Government of Canada 3-year bond yields.
• At total of 8.4% of all mortgage requests made on Ratehub.ca from January to December 2023 were for 3-year fixed-rate mortgages, compared to only 2.8% for the whole of 2022
• Just under 13% of all mortgage requests made on Ratehub.ca from January to December 2023 were for short-term fixed-rate mortgages with terms of 4 years or less, compared to just under 6% for the whole of 2022

Who should consider a 3-year fixed mortgage?

A 3-year fixed mortgage may be worth considering if:

• You're a first-time home buyer and want the opportunity to reassess your mortgage options relatively soon.
• Your mortgage is up for renewal and you're uncertain about where interest rates may be headed over the longer term.
• You expect your income, housing needs, or family situation to change within the next few years.
• You're planning to move, renovate, refinance, or access your home equity before five years have passed.
• You prefer fixed payments but don't feel comfortable locking into a longer-term mortgage right now.

Ultimately, the best mortgage term depends on your goals, budget, and comfort with risk. A mortgage broker can help you compare different term lengths and determine which option best suits your situation.

Should I get a 3 or 5 year fixed mortgage right now?

There's no universal "better" option between a 3-year and 5-year fixed mortgage — the right choice depends on what you're trying to optimize for. A 5-year fixed mortgage may make sense if:

• You prefer payment certainty and don't want to think about renewing again for several years
• You're stretching your budget and want to minimize the risk of payment changes in the near future
• The rate difference between a 3-year and 5-year term is small enough that the added certainty is worth it to you

A 3-year fixed mortgage may be worth considering if:

• You don't want to commit to a mortgage rate for a full five years
• You believe you'll be in a stronger financial position when it's time to renew
• You want the opportunity to renegotiate your mortgage sooner if market conditions improve

How do 3-year fixed mortgage rates compare to other mortgage terms?

One thing that surprises many borrowers is that shorter mortgage terms don't always come with lower rates. Depending on market conditions, a 3-year fixed mortgage can be priced higher, lower, or very similarly to a 5-year, or 10-year mortgage rate. That's because each mortgage term reflects different expectations about future interest rates, inflation, and economic conditions. The chart below compares how 3-year fixed rates have performed relative to other popular fixed-rate terms over time.

3-year mortgage rates vs. other term lengths (interactive graph)

Historical 3-year fixed mortgage rates

While comparing today's rates is helpful, looking at historical data provides additional context. Over the past several years, 3-year fixed mortgage rates have often been slightly higher than comparable 5-year fixed rates, though the gap has varied considerably depending on market conditions. During periods of rapid rate increases, shorter-term mortgages have sometimes become more attractive to borrowers who wanted to avoid locking into a longer-term mortgage.

Source: Ratehub Historical Rate Chart

 

What drives changes in 3-year fixed mortgage rates?

Unlike variable mortgage rates, which are directly influenced by changes to the Bank of Canada's overnight rate, fixed mortgage rates are primarily driven by Government of Canada bond yields. In the case of a 3-year fixed mortgage, lenders closely watch the yield on the 3-year Government of Canada bond when setting their rates. When bond yields rise, fixed mortgage rates often rise as well. When bond yields fall, lenders may lower their fixed rates.

Several factors can influence 3-year bond yields and, in turn, 3-year fixed mortgage rates:

• Inflation: Higher inflation can push bond yields higher as investors demand greater returns, which can put upward pressure on fixed mortgage rates. Conversely, cooling inflation may help rates move lower.
• Bank of Canada expectations: Even though the Bank of Canada's overnight rate doesn't directly determine fixed mortgage rates, expectations about future rate cuts or hikes can affect bond yields and mortgage pricing.
• Economic growth: Strong economic data can lead investors to expect higher inflation and interest rates, while weaker economic conditions can have the opposite effect.
• Lender competition: Mortgage rates aren't determined by bond yields alone. Lenders also adjust pricing based on funding costs, business goals, and competitive pressures, which is why rates can vary from one lender to another.

For borrowers considering a 3-year fixed mortgage, keeping an eye on bond yields can often provide an early indication of where rates may be headed.