Two-year fixed mortgages are sometimes a cost-effective term for those who seek upfront interest rate savings, but who don’t want to deal with renewing their mortgage every year.
But, while the 2-year fixed occasionally offers low mortgage rates and more convenience than a one-year, it’s not an overly popular mortgage term in Canada. In fact, just one in 14 rate shoppers, on average, take a 2-year fixed, according to Mortgage Professionals Canada.
That’s usually because rate shoppers have better rate options in most cases.
For example, those willing to lock in for one extra year can often secure a 3-year fixed mortgages at similar or lower rates. And sometimes, 5-year fixed can offer significantly longer rate stability for minimal or no rate premium.
Variable (floating) mortgage rates also make good alternatives to short-term fixed rates—like a 2-year term—depending on your holding timeframe, future intentions and economic conditions.
Below, we explore more of what you need to know about the 2-year mortgage term, including key pros and cons.
Homebuyers typically settle on a 2-year fixed rate under one of three conditions:
Here are some of the potential drawbacks of choosing a 2-year fixed mortgage:
For those who want to try and predict where 2-year fixed rates are headed, keep a close eye on the Bank of Canada’s 2-year bond yield.
It’s not a precise indicator of rate movements over the short term, but over the long run, 2-year fixed rates tend to track 2-year bond yields relatively closely.
Discounted 2-year fixed rates are currently at their lowest level in more than a decade.
They began the last ten years around 2.75% and gradually trended downwards to just above 2.00% by 2016-17.
But in just the last three years, 2-year fixed rates reached highs of around 3.25%. Compare that to nationally available discounted 2-year fixed rates of well under 2%, as of fall 2020.
Two-year fixed rates track other short- and medium-term fixed rates quite closely, generally within 20 basis points, give or take.