Best 1-year fixed open mortgage rates
What is a 1-year mortgage term?
Mortgages come in a variety of different term lengths, generally between 6 months and 10 years. Your mortgage term is the amount of time you'll agree to a mortgage with a particular provider. Once your mortgage term is over, you'll be able to renew with the same or a different provider, at which point you can receive a new rate and can a new set of conditions and features. A 1-year term is one of the shortest terms you can get. They can offer much more flexibility than a longer term, because they let you renew your mortgage sooner.
What is an open mortgage rate?
An open mortgage rate gives you lots of prepayment flexibility. With an open mortgage, you can make additional payments on your mortgage at any time during your term, with no prepayment penalty. The alternative to an open mortgage, a closed mortgage, restricts the number and size of additional payments that you can make (without paying a prepayment penalty at least). The downside of open mortgages is that they attract higher rates than closed mortgages.
Why are open rates higher than closed rates?
Open mortgage rates are inherently more flexible than closed mortgage rates, as they allow you to end your mortgage early by paying it off in full. However, that flexibility reduces the financial value of an open mortgage to your lender. To make up for this, open mortgage comes with higher rates than closed mortgages - sometimes the difference can be quite significant. Use the mortgage rate comparison table at the top of this page to see what open and closed rates are currently on the market.
What is a fixed mortgage rate?
A fixed mortgage rate will be set in stone for your entire mortgage term, which means your regular payments will also be consistent for your full term. Even if prime rates go up or down, a fixed rate will stay the same. This is great for maintaining a consistent budget. The alternative to a fixed rate is a variable rate, which will fluctuate throughout your mortgage term. While variable rates have historically been a cheaper option over the long term, they introduce more risk and variability in your finances, so are not for everyone.
Compare current mortgage rates across the Big 5 Banks and top Canadian lenders. Take 2 minutes to answer a few questions and discover the lowest rates available to you.
Best fixed rate in Canadasee my rates
Jamie David, Sr. Director of Marketing and Mortgages
1-year mortgages are fairly common in Canada, with plenty of Canadian homeowners looking for a short mortgage term to tie them over between longer terms or to see them through the sale of a home. A 1-year fixed open mortgage offer even more flexibility, allowing you to pay off the entire mortgage at any time, with no (or minimal) prepayment penalty.
When might you consider a 1-year open mortgage?
The typical use case for a 1-year open mortgage will be when you need some short term flexibility in your mortgage and don't mind paying a higher mortgage rate in exchange for that added flexibility. A short mortgage term, like a 1-year term, only holds you to a fixed rate and set of conditions for 12 months, and an open rate lets you pay off the entire balance of your mortgage at any time.
The most obvious use case for a 1-year open mortgage term would be if you're planning on selling your home within the next year. Upon selling, an open mortgage will let you use the funds from the sale to pay off your mortgage at any time, even before your mortgage is over.
A 1-year open mortgage could also be useful if you plan to refinance in the next year but aren't ready to do so yet. Refinancing involves breaking your mortgage and starting a new one from scratch, so an open mortgage lets you do so without triggering significant prepayment penalties.
Alternatives to a 1-year open mortgage
There are a lot of mortgage products on the market, and it's very possible that there may be another option that will suit you better. Here are some of the alternatives.
An alternative term length
Open mortgages come with a variety of term lengths, and some of them may very well suit your needs better. Fixed-rate open mortgages are generally offered with 6-month or 1-year terms, but variable-rate open mortgage can come in longer term lengths like 5-years. You'll need to check with your lender to see what it offers.
If you're planning on moving home in the next year, an alternative to a 1-year open mortgage might be a portable mortgage. Many providers offer mortgages that can be moved with your home - generally only once per mortgage term. This could allow you to take out a closed mortgage with a longer term and a lower rate today, but keep that mortgage when you move to your new home.
A variable-rate mortgage
Just as open mortgages are more flexible than closed mortgages, variable rates are inherently more flexible than fixed rates. While breaking a variable-rate mortgage term still incurs prepayment penalties, the cost of them is generally much lower than for fixed-rate mortgages. If you are expecting to have to break your mortgage in a relatively short period of time, it might make more financial sense to get a closed variable-rate mortgage - which will have a lower interest rate than an open fixed-rate mortgage - and just wear the prepayment penalty when you need to. You'll need to take a close look at the numbers to see if this makes sense for you.
Each of these alternatives to a 1-year open fixed-rate mortgage will suit different situations better or worse, so it's important you speak to a financial advisor and/or mortgage broker to understand the full picture.
Jamie David, Director of Marketing and Head of Mortgages
Jamie has 15+ years of business and marketing experience. She contributes her mortgage expertise to The Globe and Mail and authors Ratehub’s mortgage and homebuying guides. read full bio