5-year fixed mortgage rates in Canada
WATCH: January 24, 2024 Bank of Canada announcement
Why did fixed rates go up so much in 2022 and 2023?
Following some of the lowest interest rates in history during the pandemic, Canada’s cost of borrowing sharply increased in 2022 and 2023, as the central bank had to take extraordinary measures to calm rampant inflation growth. The Bank of Canada did so with a 10-part series of rate hikes – the steepest in Canadian history – which increased its benchmark Overnight Lending Rate from a pandemic low of 0.25% in early 2022, to 5% today. Seven of these rate increases occurred between March and December 2022, with the following three implemented between January and July 2023. As a result, Canada’s prime rate now sits at 7.2%, which has directly influenced lenders to increase their variable mortgage rates; five-year variable rates rose by roughly 65 basis points over the course of 2023, from 5.3% in January, to 5.95% by December.
Fixed mortgage rates also rose during this time period due to negative investor reaction in Canada’s bond market, as yields hit a 16-year high in October; the lowest five-year fixed mortgage rate started 2023 at a low of 4.39%, and rose to 5.24% by the end of the year.
Will fixed mortgage rates go down in 2024?
After weathering two years of mortgage rate increases, it appears borrowers are in store for lower mortgage rates in 2024 - as long as economic conditions play out as expected.
The Bank of Canada, which has a mandate to keep inflation within a 2% target and has done so via a 10-part series of rate hikes over 2022 and 2023, has recently indicated that inflation has cooled enough to warrant rate holds for the next few months, with the possibility of rate cuts in the latter half of the year and throughout 2025. In light of a higher-than-expected CPI reading of 3.4% in December, the Bank toned down its optimism, saying that rates need to stay higher for longer in order to get inflation down to its 2% goal. While the BoC’s rate policy doesn’t directly influence fixed mortgage rate pricing, the bond market has reacted anxiously to this “higher for longer” sentiment, in turn driving bond yields up after a brief respite in the end of 2023 and the start of 2024. As lenders use bond yields as part of their funding structure, many started to raise their fixed mortgage rates only a few weeks after having discounted them. With the most recent CPI reading from the month of January coming in below expectations at 2.9%, bond yields have started to come down again, easing pressure on fixed mortgage rates.
I’m in a variable-rate mortgage. Should I lock-in a fixed-rate?
Since you can’t go back in time and get the fixed rate you were offered at the beginning of your mortgage, the decision becomes more complicated. That’s because fixed mortgage rates are currently priced within the expectation of where variable mortgage rates will trend throughout your term.
You may be thinking about locking into a fixed rate because the prime rate increased throughout 2022 and in 2023 and your variable rate has moved substantially higher than where it was when you first signed your mortgage contract. However, it’s important to note that fixed rates increased significantly as well during this time period. Therefore, you have to make the variable vs. fixed decision in the current rate environment and your decision should come down to your appetite for risk and your household finances.
In its last announcement on January 24, the Bank of Canada held the Overnight Lending Rate steady at 5.00% for the fourth time in a row in response to soft GDP figures, slowing consumer spending and declining business investment. However, the Bank reaffirmed its commitment to getting inflation back down to its 2% target, noting that the current inflation rate of 3.4% remains well above that goal. As such, the Bank has determined that rates need to stay higher for longer in order to rein in inflation.
Before switching your mortgage, the main thing to consider is the spread between your current variable rate and the best fixed or variable rate you can get today.
If the spread between your current rate and the best rate you can get today is greater than the amount by which you believe the prime rate will increase for the rest of your mortgage term, then you may end up saving more by keeping your current variable rate.
If the discount to prime of the best variable rate you can get today is bigger than your current variable rate, then switching to a new variable rate may afford you more savings and provide a greater cushion against further rate increases.
If you believe that you can save more money by breaking your current variable rate, make sure to account for the cost of breaking your mortgage. You can use Ratehub’s penalty calculator to help you estimate this cost.
Lastly, if your biggest concern is the change to your monthly mortgage payments, there are some lenders who offer variable rates with “fixed” mortgage payments that do not change during the term. In such cases, when prime goes up, your monthly payment remains the same but the percentage of your payment that goes towards your principal decreases. This means that more of your payment goes towards paying the increased interest and ultimately it may take you longer to pay back your mortgage amount in full. However, it should be noted that you can hit your trigger rate (the point at which your monthly payments are going entirely to interest and not principal), and then your trigger point. The trigger point varies from one lender to another and is spelled out in your mortgage contract. A common trigger point is when the balance you owe on your mortgage exceeds the amount you initially borrowed. Once you hit your trigger point, even if your payments are 'fixed', you will have to increase your monthly mortgage payment. Most estimates show that the great majority of Canadians with variable-rate mortgages on a fixed payment schedule have hit their trigger rates in the wake of the 10 rate hikes effected by the Bank of Canada since March 2022.
Is a 5-year fixed-rate mortgage a good idea right now?
Fixed mortgage rates have historically been the most popular rate type in Canada, because they offer borrowers peace of mind; unlike a variable mortgage rate, which will fluctuate whenever the Bank of Canada changes its target Overnight Lending Rate, fixed mortgage rates are guaranteed for the mortgage’s entire term. This can help borrowers avoid volatility in the market, especially if rates rise unexpectedly. In fact, inquiries for five-year fixed mortgages made up 79% of all received by Ratehub.ca in 2023, compared to just 5% for five-year variable rates.
However, the trade off for fixed mortgage rates is less flexibility; because borrowers are locked in for their whole term, they can’t take advantage of lower mortgage rates, should they become available. Their only options in this scenario are to either wait out their term in the hopes lower rates will still be available at mortgage renewal time, or to break their mortgage and refinance at a lower rate. The latter option comes with considerable penalties that could offset the financial benefit of taking out a new, lower rate.
Borrowers should keep in mind that while fixed mortgage rates trended lower in the latter part of 2023, the market remains quite volatile – factors such geopolitical tensions, unexpected inflation growth or hawkish messaging from the Bank of Canada all have the ability to cause spiking bond yields, which in turn would drive fixed rates higher. In short, borrowers making the decision between a fixed or a variable mortgage rate should work closely with a mortgage professional such as a mortgage broker, to assess their personal financial situations and risk tolerance.
Is it better to choose a 2-year or a 5-year fixed-rate mortgage?
The length of your mortgage term is an important consideration; while a longer five-year fixed mortgage term provides greater protection from interest-rate volatility during that time period, the borrower is unable to change their mind about their rate, or take advantage of suddenly lower mortgage rates, until their term comes up for renewal. A shorter two-year fixed mortgage term offers this protection for a shorter time period, with the flexibility to make a new decision about the mortgage three years sooner than a five-year term.
However, shorter-term mortgage rates are higher than five-year options, and there is no guarantee that interest rates won’t rise during the shorter time frame, meaning borrowers will be exposed to them at renewal time. Due to this, it’s important to assess your personal financial strategy and risk tolerance when selecting the length of term for your mortgage.
What impact do changing fixed rates have on the stress test?
As fixed mortgage rates remain elevated compared to the historical lows seen during the pandemic, the mortgage stress test threshold continues to pose a tough hurdle for many borrowers.
Mortgages are currently stress tested based on the higher of:
- the qualifying rate (currently 5.25%), or
- your contract rate + 2%
As of February 21, 2024, the lowest available high ratio 5-year fixed rates are at 4.84%, while the lowest variable rate available is 5.95%. Therefore, whether you have a fixed-rate or variable-rate mortgage, the stress test used is the contract rate + 2% (as that will always be higher than 5.25%).
What is Canadian Lender and Big 6 Bank?
On our rate comparison tables, Ratehub.ca features generic brands like “Canadian Lender”. The “Canadian Lender” rate represents the lowest rate our brokerage can offer among the different lenders we work with. This means that this rate can be from a Big Bank, trust company, or lending company. The reason we do not advertise the rate under the name of the actual lender offering it, is because the rate is only available through our brokerage, via a special volume discount or promotion.
Similarly, “Big 6 Bank” is another generic provider that is used to advertise the lowest Big Bank rate that the Ratehub.ca brokerage can offer.
5-year fixed rates vs. 5-year variable rates
From 2007 - Today
See how much your payments could be if you make weekly, bi-weekly or monthly payments.
Get a sense of how much you can afford to borrow and what makes sense for you.
Land transfer tax calculator
Calculate the amount you will have to pay in land transfer tax depending on your location.
CMHC insurance calculator
Determine how much your CMHC insurance will be based on the percentage of your down payment.
February 2024: Mortgage market update
The past few months have been very volatile in the Canadian real estate market, and the start of the year has been no exception thus far. Bond yields are once more on the rise after a brief interlude that saw fixed rates fall below 5%, while variable mortgage rates remain high after the Bank of Canada’s historic rate-hiking cycle from March 2022 to July 2023 that brought the Overnight Lending Rate to 5%. Here’s what today’s mortgage shopper in Canada should know:
- Real estate update: On February 14, 2024, the Canadian Real Estate Association (CREA) published the most recent figures for the Canadian housing market for the month of January. The latest data indicates that the market seems to be coming back to life after a rather slow second half of 2023. Some 25,540 residential properties changed hands across Canada in the month of January, up by a notable 22% year-over-year, and by 3.7% on a monthly basis. New listings rose in January, but not enough to offset increased demand. The average national home price in Canada rose by 7.6% on an annual basis to $659,395. A robust rebound in demand has pushed market conditions towards the “seller-friendly” side of what is considered a balanced market. The sales-to-new-listings ratio (SNLR), which CREA uses to gauge competition in a given housing market, came in at 58.8% in January. According to CREA, which uses the SNLR to gauge competition in the marketplace, a ratio between 40-60% indicates balanced market conditions, with above and below that threshold representing sellers’ and buyers’ markets, respectively.
Read more: Canadian realtors hopeful sales growth will continue
- CPI update: In what is surely welcome news to consumers, according to Statistics Canada, the most recent Consumer Price Index (CPI) figures for the month of January 2024 came in at just 2.9%, well below the 3.3% most economists had expected. Moreover, this is the first time since March 2021 that inflation rose lower than 3%. The largest contributor to this lower inflation number was weakening gas prices, which rose by 3.2% in January compared to 3.5% the month before; this marks the fifth consecutive month where gas prices have softened. Food costs also diminished significantly, coming in at just 3.4%, down from 4.7% in December. This latest CPI reading falls within the Bank of Canada’s 1 - 3% target range, and we can reasonably assume that this means the central bank will hold rates steady in the near term. Should inflation continue to decline, market observers are predicting rate cuts as early as the second quarter of 2024.
Read more: Inflation falls to 2.9% in January
2024 Housing market forecast
In response to increasing expectations of rate cuts in 2024 and pent-up home buyer demand, CREA revised its forecast for 2024 and 2025 upwards.
If CREA’s predictions hold true, some 489,661 homes will change hands in 2024, an annual increase of 10.4%. Growth is projected to be most robust in those provinces where demand has been consistently strong, with Alberta as a prime example. That said, even markets that have experienced historically low sales volume in the last couple of years are set to experience growth. The average home price in Canada is expected to rise by 2.3% to $694,173 in 2024, with Alberta, Quebec, New Brunswick, Nova Scotia and Newfoundland and Labrador seeing the largest increases. Home prices in British Columbia and Ontario, though, are expected to remain relatively flat.
Housing market activity is expected to continue to increase in 2025, with sales forecast to reach 525,498 homes, representing an increase of 7.1%. The average home price in Canada is projected to come in at $722,063, up by 4%.
5-year fixed mortgage rates are the most popular type and term combination in Canada, so it’s usually the first place people start when researching mortgage rates. Ratehub.ca makes it easy to find the lowest 5-year fixed mortgage rates, as we bring rates from the big banks, lenders and credit unions all to one place at no cost to you.
January 24, 2024 Bank of Canada announcement update
On January 24, 2024, the Bank of Canada held its target for the overnight rate steady at 5.00%.
- Multiple data points justified a rate hold, including relatively weak economic growth, slackening consumer spending and a reduction in business investment.
- Although the Bank noted that inflation is continuing to slow, it also pointed out that December’s CPI of 3.4% was both well above its 2% target and higher than expected; as a result, higher rates need to be maintained for longer in order to tamp inflation down to 2%.
- Holders of variable-rate mortgages and home equity lines of credit (HELOC) will be happy to see their rate remain stable, but will certainly be looking for signs of rate cuts to come.
- Fixed mortgage rates are tied to the bond market rather to the Bank of Canada’s rate decisions, but with bond yields having spiked in response to December’s CPI number, many lenders were waiting to see what insights the Bank might provide. With little in the way of new information from the Bank, lenders may well think about raising their fixed mortgage rates.
- Anyone looking to buy a home or whose mortgage is up for renewal should secure a rate hold now to protect themselves from any unexpected rate increases.
- It’s unlikely that this announcement will have much of an effect on home prices, as it is basically more of the “wait and see” messaging that the Bank has been providing of late. If the Bank had made any mention of rate cuts, home values would have begun increasing almost immediately.
Best 5-year fixed mortgage rates
|Big 6 Bank
5-year fixed mortgage rates: Quick facts
Four out of five of all mortgage requests made on Ratehub.ca from January - December 2023 were for 5-year fixed-rate mortgages
69% of Canadian mortgage-holders had fixed-rate mortgages as of the end of 2022 (Source: Mortgage Professionals Canada)
- Mortgage rate is fixed over a 5-year term
- 5-year mortgage rates are driven by 5-year government bond yields
What makes a 5-year fixed-rate mortgage right for me?
Generally, a fixed-rate mortgage is a good choice if you are risk-averse and don’t want to deal with the stress that could come with a variable rate if the prime rate goes up over time and your mortgage payment increases. Before committing to a 5-year mortgage, you need to think about your personal situation today and going forward. If you are likely to move, change jobs, or otherwise embark on any life changes that may affect your ability or desire to remain in the home you are purchasing, you need to take this into account when selecting the mortgage that’s right for you.
Full feature mortgages vs. restricted mortgages
While it’s always desirable to obtain the best mortgage rate, in today’s historically high rate environment, the quest to find the lowest rate seems more important than ever. It also means that one needs to be vigilant about choosing the right mortgage for your needs. The lowest rate that you see advertised may not be what you want, because it could well be for a restricted mortgage. Although the low rates of a restricted mortgage may catch your eye, it’s important to understand the drawbacks. A full feature mortgage will have a higher interest rate, but it will also have a number of features that make it very desirable, including:
- Pre-payment options: Take a look at what pre-payment options your lender is willing to offer you. The more flexible your lender is with pre-payment options, the faster you can potentially pay off your loan, which could save you thousands of dollars in interest fees. The main pre-payment options are monthly pre-payment and lump sum pre-payment. In the case of the former, you’re allowed to increase your monthly payment up to a certain percentage determined by your lender, maxing out at 100%. If you had a lender who was flexible enough to allow you to double your monthly payments, for example, you could in theory pay your mortgage off in half the time if you were able to do so. The latter option, lump sum pre-payment, allows you to pay off up to say, 25% of your mortgage loan, again, depending on your lender.
- Porting your mortgage: If you need to sell your home before the end of your mortgage term, many lenders will allow you to port your mortgage. Porting a mortgage means to take your current mortgage with its existing rates and terms and transfer it to another property, and allows you to avoid breaking your mortgage. You’ll want to talk to your lender about how portable your mortgage is, particularly if you think you may need to move before your term is up. Not all mortgages are portable, and many that are portable have conditions attached that you should be aware of.
- Lump sum pre-payment privileges: You are allowed to make multiple lump sum pre-payments to bring down your mortgage balance in a given calendar year. Most lenders will cap the amount of pre-payments you can make, e.g. you cannot pay more than 20% of your principal in a single year.
- Payment flexibility: If you choose to increase the size of your regular mortgage payments, you are able to do so without incurring any penalties or fees.
These are just some of the most common features you’ll find in a full feature mortgage that make them so convenient for homebuyers. To learn more about the mortgage that’s right for you, it’s always a good idea to speak with a mortgage broker. They can give you personalized, expert advice at no cost to you.
What are some of the pros and cons of a 5-year fixed mortgage?
There are pros and cons to choosing a 5-year fixed mortgage rate, and we’ll walk you through each below. Some of the pros of a 5-year fixed mortgage are:
- Risk protection: For buyers who are risk-averse; a fixed rate mortgage enables you to “set it and forget it” - your rate, and therefore mortgage payment, is locked in and will not fluctuate with changes in bond yields. This allows you to budget with greater accuracy and offers you stability for the duration of your term. Moreover, in recent years, Canadians enjoyed access to some of the best fixed rates available in decades, although fixed rates started to climb again in October of 2021. Since then, high inflation, global banking instability, an incredibly tight job market and other factors have all pushed bond yields up, and with them, fixed mortgage rates. Today’s fixed rates are now higher than they have been since back in 2009.
- Competitive rates: The 5-year term is historically the most popular option, and the one that lenders often encourage you to opt for. The length of this term is a good “middle of the road” choice for home buyers. Because it’s such a competitive, popular rate term, lenders often get the most aggressive when pricing these terms.
On the flip side, there are some cons to consider as well.
- Higher rates: In order to guarantee your fixed rate, your lender will charge you a premium. According to York University Professor Moshe Milevsky’s landmark 2001 study, historically, over 90% of Canadians who have maintained a variable mortgage rate throughout their entire mortgage term have paid less in interest than those who have stuck to a fixed rate.
- Breakage penalties: While the 5-year term can offer you peace of mind, in the event that something such as a move, loss of a job, illness or divorce forces you to break your mortgage, you could be on the hook for a hefty break penalty. With a fixed mortgage rate, your penalty will be the greater of the interest rate differential (IRD) or three months’ interest. Oftentimes, the IRD penalty can be large, and thus a fixed rate mortgage can be expensive to break. If you have a variable rate mortgage, on the other hand, the penalty will always be three months’ interest, and it can therefore be less costly to break your mortgage. For a more detailed explanation of IRD and how it is calculated, you can refer to our Mortgage Refinance Calculator page. You can also use our Mortgage Penalty Calculator to estimate how much you might have to pay in the event that you have to break your mortgage.
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
Historical 5-year fixed mortgage rates
Looking over historical mortgage rates is the best way to understand which mortgage terms attract lower rates. They also make it easier to understand whether rates are currently higher or lower than they have been in the past.
Here are the lowest (high-ratio, insured) 5-year fixed rates of the year in Canada for the last several years, compared to several other types of mortgage rates.
Source: Ratehub Historical Rate Chart
The popularity of 5-year fixed mortgage rates
A 5-year mortgage term is the most popular 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. It also tends to be heavily promoted by major lenders. A further breakdown of mortgage terms shows that about 80% of mortgages have terms of five years or less.
Fixed rates are by far the most common - in 2023, from January to September, almost 95% of mortgage rate inquiries made to Ratehub.ca were for fixed rates.
What drives changes in 5-year fixed mortgage rates?
By and large, 5-year fixed mortgage rates follow 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.
References and Notes
- Trends in the Canadian Mortgage Market: Before and During COVID-19, Statistics Canada, 2021
- Annual State of the Residential Housing Market in Canada, Mortgage Professionals Canada, 2021
- Housing Market Report: 2022 Year-End Consumer Survey and Outlook, Mortgage Professionals Canada, 2023
For more information, check out these helpful pages
So you've made the decision to buy a new home! The first step is to figure out how much you can afford to spend.read more
If your current mortgage is up within four months, now's the time when most lenders will allow you to start the early mortgage renewal process.read more
When deciding whether or not you should refinance your current mortgage and replace it with a new one, there are a few important things to consider.read more