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Find the Best 1-Year Fixed Mortgage Rates in Canada

Compare the latest 1-year fixed mortgage rates from major banks, credit unions and mortgage brokers.

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About 1-year fixed mortgage rates

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.

Pros of a 1-year fixed mortgage

These are some of the advantages of a 1-year fixed mortgage:

  • Lower rates compared to longer terms: Shorter terms often offer better pricing compared to longer terms. In the case of one-year rates, they can be a decent discount compared to other short terms, such as two and three years. They’re also a great alternative to a floating rate when variable discounts are small by comparison, as was the case in spring/summer 2020.
  • Less chance of paying prepayment penalties: For those who are unsure about their near-term life plans, locking into a longer fixed term can result in significant penalties should you need to break your mortgage early. With a one-year term, the odds of needing to break your mortgage before the end of the term are significantly reduced.
  • Good for those who only need a short-term mortgage: A one-year term can be ideal if you only need a mortgage for roughly 12 months. Typical examples include property flips, credit rehabilitation and people with short remaining amortizations.
  • Those who expect rates to fall within 12 months: A 1-year fixed mortgage can be a great “placeholder” term for borrowers who expect mortgage rates to fall in the next year. A one-year term allows them to shop the market in just 12 months’ time. This is especially useful when variable-rate discounts are historically small (e.g., prime – 0.25% instead of prime – 1.00%).

Cons of a 1-year fixed mortgage

The following are some of the potential drawbacks of choosing a 1-year fixed mortgage:

  • Little protection against rate hikes: If rates jump, you’re not protected as you would be with a longer fixed term.
  • Renewal hassle: Many people choose slightly higher rates for a longer term, such as the five-year, in part simply to avoid the perceived hassle of renewing their mortgage so often. A one-year term may be a good one-off option depending on your circumstances, but choosing one-year terms regularly can indeed become a headache at renewal time.
  • Switching costs: If you opt for a short term such as the 1-year fixed—particularly for consecutive terms—you are more likely to face switching costs if you end up changing lenders frequently.

Predicting 1-year fixed mortgage rates

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.

History of 1-year fixed mortgage rates

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.

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1-year fixed mortgage tips

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:

  • Keep in mind that lenders offer their best rates to new buyers, but they’re notorious for quoting poor rates for existing clients at renewal time. This is especially true for 1-year fixed rates. That means there’s a higher possibility you might have to switch lenders at renewal if you want the lowest possible pricing.
  • To qualify for a one-year term, you generally need to prove you can afford a payment based on a higher “stress test” rate – which is the greater of:
    • The posted 5-year fixed rate (a.k.a. the “minimum qualifying rate”) set by the Bank of Canada, or
    • The contract rate plus two percentage points
    • There may be exceptions to this if you use a credit union
  • Remember that you can start shopping for your renewal rate as soon as eight months into your one-year term, since many lenders offer 90- to 120-day rate holds.
  • One-year fixed mortgages typically entail additional closing costs, since many lenders do not pay legal and appraisal fees when you switch into a one-year mortgage. They generally do, however, for terms of three years or more.
  • If you’re shopping for a one-year term, some come with the flexibility to convert into a longer term at any time. This is theoretically handy should interest rates start to rise over the course of your term. Just keep in mind, you likely won’t get the best rate when you lock in because the lender knows you’re a captive audience.

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