Mortgage Amount If you are a first-time homebuyer, the mortgage amount is the price of the home you intend to purchase, minus your down payment. If you are renewing or refinancing your mortgage, this is the value of your the mortgage.
       Term The mortgage term is the amount of time a home buyer commits to the rules, conditions and interest rate agreed upon with the lender. The term can be anywhere from six months to 10 years, with a 5-year mortgage term being the most common duration.
       Amortization The amortization period is the length of time it takes to pay off your mortgage in its entirety. The most common amortization period is 25 years, with the maximum set at 30 years for down payments less than 20%. Although longer amortization periods reduce your monthly payments, you will pay more interest over the life of your mortgage.

5-Year Fixed Mortgage Rates

Mortgage rate
       Mortgage rate The rate of interest you will pay on the outstanding balance of your mortgage. This rate can be fixed for the duration of the term or variable, fluctuating with the prime rate. Fixed rates are most popular in Canada and represent 66% of all mortgages.
Provider
       Provider Mortgage providers include lenders and mortgage brokers. As the name suggests, lenders provide the funding for your mortgage. Mortgage brokers are licensed professionals with access to multiple lenders and products. According to the Canadian Mortgage and Housing Corporation, mortgage brokers accounted for 38% of mortgage originations in 2009.
Rate hold
       Rate hold The rate hold is the time period, between 30-120 days, before your mortgage renewal date you are able to lock in the current mortgage rate. If rates go down further within this period, however, many lenders will honour the lower rate.
Prepayment
       Prepayment Prepayment options outline the flexibility you have to increase your monthly mortgage payments or make a lump sum outlay against your mortgage as a whole. According to the Canadian Association of Accredited Mortgage Professionals (CAAMP), 28% of mortgage holders used one or both prepayment privileges in 2010.
Payment
       Payment The monthly mortgage payment is calculated based on the mortgage amount, amortization period and the associated mortgage rate. A general affordability rule is that your monthly housing costs should not exceed 32% of your gross household monthly income.
2.74% Home Capital Solutions
Home Capital Solutions
90 days Lump Sum: 20%
Monthly: 20%
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2.74% Mortgages.ca
Mortgages.ca
90 days Lump Sum: 20%
Monthly: 20%
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2.79% Safebridge
Safebridge
30 days Lump Sum: 15%
Monthly: 15%
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2.79% Zilla Mortgage
Zilla Mortgage
90 days Lump Sum: 20%
Monthly: 20%
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2.99% Bank of Montreal
Bank of Montreal
90 days Lump Sum: 10%
Monthly: 10%
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3.09% C.M.B. Canada Mortgage Brokers Inc
C.M.B. Canada Mortgage Brokers Inc
120 days Lump Sum: 20%
Monthly: 20%
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3.19% HSBC
HSBC
90 days Lump Sum: 20%
Monthly: 20%
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3.39% National Bank
National Bank
90 days Lump Sum: 10%
Monthly: 100%
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3.49% Laurentian
Laurentian
90 days Lump Sum: 15%
Monthly: 15%
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3.79% Tangerine
Tangerine
30 days Lump Sum: 25%
Monthly: 25%
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4.44% PC Financial
PC Financial
120 days Lump Sum: 20%
Monthly: 25%
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4.79% TD Bank
TD Bank
120 days Lump Sum: 15%
Monthly: 100%
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4.79% Scotiabank
Scotiabank
60 days Lump Sum: 15%
Monthly: 15%
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4.94% RBC Royal Bank
RBC Royal Bank
120 days Lump Sum: 10%
Monthly: 100%
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4.99% CIBC
CIBC
90 days Lump Sum: 10%
Monthly: 100%
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Historical 5-year Fixed Mortgage Rates
Source: Bank of Canada, 5-year mortgage rate

5-year fixed mortgage rate defined

The '5' in a 5-year mortgage rate represents the term of the mortgage, not to be confused with the amortization period. The term is the length of time you lock in the current mortgage rate, while the amortization period is the amount of time it will take you to pay off your mortgage. The term acts like a reset button on your mortgage, at which point you must renew the mortgage at a rate available at the end of the term. So, for example, a typical mortgage has a 5-year term and a 25-year amortization period.

When the mortgage rate is 'fixed' it means that the rate (%) is set for the duration of the term, whereas with a variable mortgage rate, the rate fluctuates with the market interest rate, known as the 'prime rate'. So, for example, if the 5-year fixed mortgage rate is 4%, then you will pay 4% interest throughout the term of the mortgage.

An interesting feature of the 5-year fixed mortgage rate is that all borrowers must meet its standards of approval even if they choose a mortgage with a lower interest rate and shorter term. This benchmark is applied not only to reduce risk for the lender, but to give the borrower some breathing room.

Popularity of 5-year fixed mortgage rates

Mortgages by length of term and age group

Term Length Age group
18-34 35-54 55+ All ages
1 year term 5% 7% 6% 6%
2-4 year term 27% 18% 12% 20%
5 year term 66% 65% 69% 66%
6-10 year term 3% 9% 10% 7%
>10 year term 0 0 2% 1%
Source: CAAMP "Annual state of the Residential Mortgage Market in Canada", 2010

A 5-year mortgage term, at 66% of all mortgages, is by far the most common duration. It sits right in the middle of available mortgage term lengths, between one and 10 years, and, thus, its popularity reflects a risk-neutral average.

A further breakdown of mortgage terms shows that an additional 8% of mortgages have terms exceeding five years, while 26% of mortgages have shorter terms, including 6% with one year or less and 20% with terms from one year to less than four years.

Fixed rates are also most common, representing 66% of total mortgages as well. In terms of age dispersion, fixed rate mortgages are slightly more common for the youngest age groups, and older age groups are more likely to choose variable rate mortgages.

Comparing 5-year fixed mortgage rates

You can think of the difference, or spread, between variable mortgage rates and fixed rates as the price of insurance that mortgage costs will not increase in the next five years, more or less.

The advantage of fixed rate mortgages is that you know exactly how much your mortgage payments will be regardless of whether rates rise or fall. You can, essentially, set it and forget it. This eases the budgeting anxiety that may follow a variable rate mortgage.

When interest rates are low, and the spread between shorter-term rates and the 5-year fixed mortgage rates is less significant, it is typically recommended that you lock in the 5-year rate. The longer term offers stability and, because rates are historically low, the chances of rates decreasing further with a variable rate are greatly reduced.

On the other hand, as is the case with all fixed mortgage rates, there is the potential to pay higher interest when variable rates are low, and, examined historically, variable rates have proven to be less expensive over time.

What drives changes in 5-year fixed mortgage rates?

5-year Rates vs. 5-year Bond Yields
Source: Bank of Canada, 5-year mortgage rates

By and large, the 5-year fixed mortgage rate follows the pattern of 5-year Canada Bond Yields, plus a spread. Bond yields are driven by economic factors such as unemployment, export and inflation.

When Canada Bond Yields rise, sourcing capital to fund mortgages becomes more costly for mortgage lenders and their profit is reduced unless they raise mortgage rates. The reverse is true when market conditions are good.

In terms of the spread between the mortgage rates and the bond yields, mortgage lenders set this based on their desired market share, competition, marketing strategy and general credit market conditions.

Source: All data percentages were taken from CAAMP "Annual State of the Residential Mortgage Market in Canada" 2010