5-year fixed mortgage rates in Canada
WATCH: October 25, 2023 Bank of Canada announcement
How much have fixed rates increased so far in 2023?
On January 1, 2022 the best high-ratio, 5-year fixed rate in Canada was 2.34%. As of November 21, 2023, the best high-ratio, 5-year fixed rate in Canada was 5.29%.
From March 2022 to November 2023, fixed mortgage rates in Canada went up a total of 2.95%, which represents an increase of well over 100%.
Why did fixed rates go up so much in 2022 and 2023?
5-year bond yields directly affect 5-year fixed mortgage rates. When bond yields go up, the cost to lend money to borrowers increases and consequently, lenders raise their mortgage rates to compensate.
Throughout 2022, bond yields rose steadily in response to various economic conditions, particularly high inflation. Moving from 2022 into 2023, the bond market has been extremely volatile, rising and falling at a head-spinning pace as anxious investors react swiftly to various domestic and international events. While there were a couple of brief interludes at the beginning of the year and in the latter part of spring, bond yields have largely been on the rise, or at best, remaining elevated.
Although fixed mortgage rates are not directly related to the Bank of Canada, fears around inflation-related rate hikes have been a major source of volatility in the bond market in 2023, and each rate hike by the Bank of Canada has engendered further instability. As such, fixed mortgage rates have been under fairly steady upward pressure for most of 2023. While bond yields went down slightly in the wake of the Bank’s September 6 rate hold, a stronger-than-expected Labour Force report from Statistics Canada for the month of September helped push them up to between 4.3 - 4.5%, exerting upward pressure on fixed mortgage rates. As a result, lenders had to raise their fixed mortgage rates across all terms in the latter half of October. The Bank of Canada’s most recent rate hold on October 25 was widely expected, and thus initially had little effect on bond yields. However, this rate hold, coupled with a rate hold by the US Federal Reserve on November 1, has finally incited bond yields to start dropping, coming down to the 3.8% range. This has allowed a number of lenders to reduce their fixed mortgage rates. Should bond yields continue to come down, there will be further downward pressure on fixed mortgage rates.
Will fixed rates go up in 2023?
There has been considerable volatility in the bond market so far in 2023, as it reacts to mixed economic data. The roller coaster began at the beginning of 2023, when declining bond yields led to a brief period where lenders discounted their rates. This quickly reversed, however, once additional inflation data indicated the measure would remain higher than central banks anticipated.
In the first few months of 2023, cooling inflation allowed the Bank of Canada to adopt a conditional rate hold stance, which had many observers hoping that this would bring some much-needed stability to the bond market. However, these hopes were dashed by April’s higher-than-expected inflation figures, followed by surprisingly robust GDP growth in the first quarter of the year. These were some of the main factors that incited the Bank to once again raise its target for the overnight rate on June 7, which sent bond yields climbing even higher. The Bank’s decision to effect another rate hike on July 12 introduced additional volatility into an already jumpy bond market. The Bank’s rate hold on September 6 caused bond yields to come down somewhat, only to rise again buoyed by anxiety over excessively high inflation in July and August. Then, Statistics Canada released its Labour Force report for September, which showed that some 64,000 jobs were added over the course of the month (double what was expected). This unexpectedly strong figure along with intransigent inflation pushed bond yields up to around the 4.4% mark, a level not seen since 2007. As a result, fixed mortgage rates across all terms rose as we moved into the fall. The Bank of Canada’s October 25 rate hold at first had little effect on the bond market, as it was widely anticipated. Then, however, the US Federal Reserve also chose to hold rates steady on November 1, and, coupled with the BoC’s rate hold the week prior, this was enough to cause bond yields to come down to the 3.8% range, where they currently sit. As a result, many lenders have been able to reduce their fixed-rate mortgage products. Should bond yields continue to trend downward, we can expect fixed mortgage rates to do so as well.
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 October 25, the Bank of Canada held the Overnight Lending Rate steady at 5.00% for the second month in a row in response to soft GDP figures, slowing consumer spending, a slightly slacker labour market, and a lower-than-expected September CPI reading. However, the Bank reaffirmed its commitment to getting inflation back down to its 2% target, and did not rule out further rate hikes in 2023 in order to achieve this goal.
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.
What impact do changing fixed rates have on the stress test?
With mortgage rates at historic highs, the mortgage stress test threshold continues to be a formidable one.
Mortgages are currently stress tested based on the higher of:
- the qualifying rate (currently 5.25%), or
- your contract rate + 2%
As of November 21, 2023, the lowest available high ratio 5-year fixed rates are at 5.29%, 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
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November 2023 mortgage market update:
The last few months have been very volatile in the Canadian mortgage market, and November 2023 is no exception thus far. Bond yields are finally coming down after reaching levels not seen since 2007, while variable mortgage rates remain high after the Bank of Canada’s two consecutive rate hikes in June and July that brought the target Overnight Lending Rate to 5%. Here’s what today’s mortgage shopper in Canada should know:
Bond market update: After months of historically high levels, Government of Canada bond yields are finally cooling in response to rate holds carried out by the Bank of Canada and the US Federal Reserve on October 25 and November 1, respectively.
Canadian five-year bond yields have descended to the 3.8% range, down from the high of 4.4% seen in October (a level not seen since 2006). With bond yields moderating, fixed mortgage rates are finally decreasing as well, since bond yields are what lenders use to set the threshold for the fixed-rate mortgage offerings. As a result, fixed mortgage rates from a number of lenders have fallen by an average of 30 basis points (0.3%)
It’s hard to say if this trend will continue, but multiple recent key economic reports bolster the case for central banks to bring an end to their rate hike cycles, including weaker-than-expected GDP and jobs reports. Inflation, which is the primary factor behind rate hikes, is also finally headed in the right direction, with the most recent CPI from October coming in at 3.1%. It’s widely expected that the Bank of Canada will maintain its target for the overnight rate at its final announcement for 2023 on December 6. Market observers are increasingly predicting that we may see rate cuts as early as the latter half of 2024.
CPI update: The Bank of Canada keeps a close eye on inflation, as this metric is the key measure that guides its monetary policy. The Bank uses its policy rate (also known as the Overnight Lending Rate or benchmark rate) to control inflation. When inflation is trending excessively high, as has been the case since the end of the pandemic lockdowns in 2021, the Bank responds by hiking the policy rate. By making the cost of borrowing money more expensive, the Bank seeks to tamp down consumer spending and borrowing activity and stifle the growth of inflation. Conversely, when the economy is slumping, the Bank of Canada cuts its benchmark rate to encourage borrowing and spending.
On November 21, Statistics Canada released the latest Canadian consumer price index (CPI) figures for the month of October 2023. The most recent data indicates that headline inflation growth stood at 3.1%, broadly aligning with expectations, and a welcome decline from the 3.8% registered in September. On a monthly basis, CPI rose barely by just 0.1%, following a similar decline in September.
Much of the decrease can be attributed to falling gas prices, which fell by -7.8%. That said, certain factors such as mortgage interest costs and rents are still extremely elevated, having risen 30.5% and 8.2% year over year, respectively. Service prices have also risen on an annual basis, up by 4.6%. In a bit of good news, grocery costs decreased from 5.8% in September to 5.4% in October.
Core inflation (inflation stripped of the most volatile costs like gas and food) is also starting to cool, falling from September’s 3.7% to 3.6% in October. In all, these numbers strongly support a third consecutive rate hold from the Bank of Canada at its last announcement of the year on December 6, and both mortgage borrowers and home buyers can enjoy some stability for the rest of 2023.
Real estate update: On November 15, 2023, the Canadian Real Estate Association (CREA) published the most current figures for the Canadian housing market for the month of October. The latest numbers reveal that home buying activity continued to decline into the fall, with unseasonably low demand. In fact, according to CREA, home sales dropped in the majority of markets across Canada.
Some 33,921 residential properties changed hands during the month of October, representing a -5.6% decline over the previous month and relatively flat on a year-over-year basis with an increase of just 0.9%. The average home price in Canada increased slightly to $656,625, 1.8% more than the same time last year, but virtually unchanged from September’s figure.
A total of 70,020 homes were listed in October, representing a monthly decline of -2.3%, and the first decline recorded since March 2023. Annually, however, new supply still saw a 16% increase.
With the decline in sales higher than the decline in new listings, buying conditions improved somewhat. The sales-to-new-listings ratio that CREA uses to measure the level of competition in the market fell to 49.5%, the lowest it’s been in a decade (and well below April’s high of 67.9%). We can reasonably expect that activity will remain sluggish until at least the spring of 2024, assuming the Bank of Canada keeps rates unchanged.
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.
October 25, 2023 Bank of Canada announcement update
On October 25, 2023, the Bank of Canada held its target for the overnight rate at 5.00%
- A number of key data points used by the Bank when determining how to move forward justified a rate hold. These include sluggish retail sales, weakening GDP and, in particular, September’s 3.8% CPI reading, which came in below expectations. All of these demonstrate that the effects of all the Bank’s previous rate hikes are being felt.
- Fixed rates are not tied directly to the Bank of Canada’s rate decisions, but rather to activity in the bond market. Bond yields reacted minimally to the Bank’s rate hold announcement, as it was widely expected. This means that fixed mortgage rates will remain at their current elevated levels for the time being.
- While holders of variable-rate mortgages and home equity lines of credit (HELOC) will be pleased to see that rates have not gone up, they will likely be concerned about the reality of “higher for longer” rates.
- Anyone looking to buy a home or who has a mortgage up for renewal should secure a rate hold to protect themselves against possible further rate rises.
- The Canadian real estate market is slowing down across the board, with inventory building, transactions declining, and prices falling. Anyone looking to sell their home and buy a new one should sell first and purchase after in order to know what their actual sale price/home buying budget will be.
Best 5-year fixed mortgage rates
|5.19%||5 years||Fixed||Canadian Lender|
|5.44%||5 years||Fixed||Equitable Bank|
|5.49%||5 years||Fixed||Alterna Savings|
|5.64%||5 years||Fixed||First National|
5-year fixed mortgage rates: Quick facts
Nearly four out of five of all mortgage requests made on Ratehub.ca from January - September 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.
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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
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