3-year Fixed Mortgage Rates
Historical 3-Year Fixed Mortgage Rates From 2000 - Today
- Mortgage rate is fixed over a 3-year term
- 20% of Canadians have mortgage terms between 2-4 years
- 66% of Canadians have fixed mortgage rates
- 3-year fixed mortgage rates follow 3-year government bond yields
3-year fixed mortgage rates defined
A 3-year fixed mortgage will have a constant rate of interest over a term of three years. The term should not be confused with the amortization period, which is the length of time it takes to pay off your mortgage. The term, rather, is the period you are committed to the contractual provisions and mortgage rate with your lender.
Three-year terms are not the most popular in Canada, but they do make sense under certain circumstances, which are discussed in more detail below.
Comparing 3-year fixed mortgage rates
There are a number of factors supporting the choice of a short-term rate like the 3-year fixed mortgage rate. For one, if you believe you are in a falling interest rate environment, where rates will, in the least, stay stagnant and, at best, fall, shorter terms are more strategic. Instead of being locked in to a rate for years longer, you can take advantage of low rates when your mortgage is up for renewal. Conversely, if you are in a rising interest rate environment, the opposite is true.
Short terms are also sensible if you are likely to break your mortgage within a few years – like, for example, if you want to upgrade your home. Going with a 3-year term over a 5-year term could save you a considerable amount of money in penalty costs.
3-Year Fixed vs. Longer Term Mortgage Rates From 2006 - Today
Additionally, you will want to consider the market pricing of different terms and the premiums associated with locking in long-term mortgage rates. For instance, if there is a significant premium on a 5-year rate compared to a 3-year rate, it may not be worth buying the two years additional interest rate certainty.
The advantage of a fixed mortgage rate is that your monthly mortgage payments will stay constant and you are protected against interest rate fluctuations; however, variable rates, although exposed to changes in the prime lending rate, have proven to be less expensive when examined historically.
Popularity of 3-year fixed mortgage rates
Around 20% of Canadians have a mortgage term between two and four years, with this figure slightly higher for younger age groups. Typical to younger demographics, the tolerance for risk is likely higher, with a reduced urgency to lock in rates for long periods of time.
Fixed rates, however, at 66% of all mortgages, are most popular, with little difference in uptake amongst age groups.
| TERM Length | Age Group | |||
|---|---|---|---|---|
| 18-34 | 35-54 | 55+ | All Ages | |
| 1 YR | 5% | 7% | 6% | 6% |
| 2-4 YR | 27% | 18% | 12% | 20% |
| 5 YR | 66% | 65% | 69% | 66% |
| 6-10 YR | 3% | 9% | 10% | 7% |
| >10 YR | 0% | 0% | 2% | 1% |
What drives changes in 3-year fixed mortgage rates?
Fixed mortgage rates follow government bond yields, with 3-year fixed rates following 3-year government bond yields. Bond yields are driven by economic conditions, and the spread between bond yields and lender-posted mortgage rates vary by a lender's marketing strategy and general credit market conditions.
References and Notes
- Annual state of the Residential Mortgage Market in Canada, CAAMP, 2010