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One-year fixed rates aren’t a fan favourite. Only about 5-6% of Canadian mortgage shoppers choose a 12-month term, according to data from Mortgage Professionals Canada.
That doesn’t mean they can’t be a perfect choice for some mortgage shoppers.
In mid-2020, 1-year fixed rates attracted attention by becoming the first contract mortgage rates to fall below 1.40% in Canadian history. For that reason, among others, they remain a solid alternative to a variable rate.
Below we explore what you need to know about the 1-year fixed mortgage term, including some of its benefits and drawbacks.
These are some of the advantages of a 1-year fixed mortgage:
The following are some of the potential drawbacks of choosing a 1-year fixed mortgage:
If you want to try and guess the trend for 1-year fixed rates, you can do so by watching Canada’s 1-year Treasury bill yield.
Note that this doesn’t yield a forecast for future rates, but over the long term, 1-year fixed rates do track the 1-year Treasury bill yield fairly closely.
Looking back at the performance of 1-year fixed rates in Canada, they have remained fairly stable over the past decade, with discounted rates most recently sliding to their lowest level on record.
Posted conventional 1-year fixed rates have steadily fallen ever since their peak of more than 20% reached in the early 1980s. Since the Financial Crisis of 2008-09, posted 1-year rates have remained roughly between 3.00% and 3.50%.
Historically, 1-year rates have tracked the performance of variable rates quite closely. More specifically, when deeply discounted, they have outperformed every other term besides a variable — over decades.
1-year fixed rates have one of the shortest commitments of any mortgage term, which is why they often have the lowest rates on the market, even lower than floating rates at times.
Studies show that 1-year terms perform similar to variable-rate mortgages when it comes to total interest cost.
Here are some 1-year fixed term tips, and how to make the most of this short-term mortgage product: