Two-year fixed mortgages can be a useful term for those seeking upfront interest rate savings, but who don’t want to deal with renewing their mortgage each year.
While the 2-year fixed offers a good balance between short-term rate stability and lower mortgage rates, it’s not one of the most popular Canadian mortgage terms.
Just one in 14 rate shoppers, on average, take a 2-year fixed, according to Mortgage Professionals Canada. That’s because rate shoppers often have a number of better rate options.
For example, those wanting to lock in for just one extra year can sometimes secure a 3-year fixed at lower rates compared to a 2-year term. And 5-year fixed can offer significantly longer rate stability for a minimal rate premium.
Variable (floating) mortgage rates also make good alternatives to short-term fixed rates like the 1- and 2-year terms, depending on economic conditions.
That said, on occasion a lender will come out with a 24-month fixed promotion that is simply too good to pass up.
Below, we explore what you need to know about the 2-year mortgage term, including some of its benefits and drawbacks.
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.
Two-year fixed rates track other short- and medium-term fixed rates as well. They’re generally within 20 basis points of 1-year or 3-year fixed rates, give or take.
Discounted 2-year fixed rates are currently at their lowest level in more than a decade.
They began the decade at 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 more than 3.00%. Compare that to nationally available discounted 2-year fixed rates of just 1.59% (for default-insured mortgages) and 1.84% (for uninsured mortgages), as of fall 2020.
For those choosing a 2-year fixed rate, here are a few tips to get the most out of this relatively unpopular short-term product: