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*Rates are based on a $300,000 mortgage.
*Rates are based on a $300,000 mortgage.
*Rates are based on a $300,000 mortgage.
A three-year fixed mortgage rate is a fixed mortgage rate sought by a borrower for a period of three years. The term of a mortgage is the length of time a financial lender will loan mortgage amount to a homebuyer. The two-to-five-year term period is the most common among borrowers in Canada. A borrower might take a longer time to completely pay off the mortgage – usually 15 to 25 years. It is simply the time period within which the fixed mortgage rate will be valid for the borrower. At the end of three years, the borrower could either pay off the entire amount remaining or renew their mortgage rate with their existing lender or a new mortgage provider depending on the market situation and mortgage rates.
Unlike a variable rate, in which the percentage of interest may vary according to the market situation, a fixed mortgage rate locks in the rate as per the existing economic situation. In the case of a 3-year fixed mortgage rate, the rate is locked in for a period of three-years, at the end of which, the borrower will have to assess their financial situation and seek renewal.
In the current economic situation, Canadians are faced with the rising interest rates, inflation and a global economic downturn.
Starting in March 2022, the Bank of Canada has raised the policy interest rate quickly and consistently — from 0.25% to 4.5%. This has resulted in borrowing rates going up for households and businesses, spending has declined, especially on housing.
The Bank of Canada’s overnight rate increase can have a significant impact on the yield of a 3-year bond. A higher overnight rate leads to increase in interest rates across the economy, including the yield on 3-year bonds.
When the Bank of Canada raises its overnight rate, the cost of borrowing for banks and other financial institutions generally increases. As a result, the yields on short-term bonds, including 3-year bonds, tend to rise as well. Conversely, when the Bank of Canada lowers its overnight rate, the cost of borrowing decreases and the yields on short-term bonds, including 3-year bonds, tend to fall.
In January this year, the Bank of Canada said it expects to pause rate hikes but this pause is conditional and depends upon whether the economy develops as per economists’ predictions and whether inflation continues to fall. With economic growth slowing to close to zero in the first half of 2023, inflation should drop to around 3% in the middle of the year and reach the Bank’s 2% target in 2024.
The changes in 3-year bond yields could have an impact on the 3-year fixed mortgage rates but not always. The 3-year bond yield is a valuable indicator of the market's expectations for future interest rates, and changes in bond yields can impact the cost of borrowing for banks and other financial institutions.
When the 3-year bond yield increases, this can indicate that market participants expect interest rates to rise in the future, which can lead financial institutions to adjust their lending rates, including the rates for 3-year fixed mortgages. An increase in 3-year bond yields can result in a higher 3-year fixed mortgage rate.
On the other hand, if 3-year bond yields decrease, this suggests market participants expect interest rates to remain low or decline in the future, which can lead to lower borrowing costs for financial institutions and potentially lower 3-year fixed mortgage rates.
There are many factors that can impact both 3-year bond yields and 3-year fixed mortgage rates, including inflation expectations, economic growth, and government monetary policy. Moreover, the relationship between bond yields and mortgage rates can be complex and may not always be straightforward.
| Date | 3-year conventional mortgage (in %) | 3-year bond yields (in %) |
|---|---|---|
| January 5, 2022 | 3.49 | 1.12 |
| March 30, 2022 | 3.69 | 2.31 |
| April 6, 2022 | 3.89 | 2.4 |
| April 27, 2022 | 4.09 | 2.55 |
| May 11, 2022 | 4.39 | 2.74 |
| May 25, 2022 | 4.49 | 2.54 |
| June 15, 2022 | 4.89 | 3.28 |
| June 22, 2022 | 5.24 | 3.29 |
| June 29, 2022 | 5.39 | 3.18 |
| July 27, 2022 | 5.64 | 3 |
| September 28, 2022 | 5.74 | 3.68 |
| October 5, 2022 | 6.04 | 3.8 |
| November 30, 2022 | 6.14 | 3.64 |
| December 7, 2022 | 6.05 | 3.48 |
| December 14, 2022 | 6.14 | 3.44 |
Source: Bank of Canada
Yes, the 3-year fixed mortgage rate is a popular choice for homeowners and borrowers in Canada. This type of mortgage offers the security of a fixed interest rate for a period of three years, which can provide borrowers with peace of mind and stability when it comes to their monthly mortgage payments unlike a variable mortgage rate.
The 3-year fixed rate is a good choice for borrowers who value the certainty of a fixed monthly payment, and who are comfortable with the idea of renewing or refinancing their mortgage after three years. This type of mortgage is also good for borrowers who are planning to stay in their home for a short to medium-term period, as the 3-year term is a good balance between the stability of a fixed rate and the flexibility of a shorter term.
While the 3-year fixed mortgage rate is popular in Canada, it's important for borrowers to shop around and compare rates from multiple lenders to ensure they're getting the best deal for their specific needs and financial situation.
Here some of the advantages of a 3-year fixed:
The following are some potential drawbacks of choosing a 3-year fixed mortgage:
If you want to try and predict where 3-year fixed rates are headed, we don’t recommend that. But if you want to try anyhow, look to Canada’s 3-year government bond yield.
The 3-year bond yield won’t tell you exactly where 3-year rates are heading, but they do provide a good roadmap near-term. If yields show a sustained upward trend, for example, chances are good that 3-year fixed rates will start trending higher as well.
In the past decade, 3-year fixed rate mortgages have remained stable, typically ranging between 2% and 3%. In September 2020, borrowers could even find nationally available uninsured 3-year fixed rates for under the 2% mark. However, with the Bank of Canada’s rate hike spree starting March 2022, 3-year fixed rates have risen historically, and even hovered around the 5-year fixed rate mortgage between 4% and 5%. At the time of the Financial Crisis back in 2008-2009, discounted 3-year fixed rates surpassed 6% before trending downward in the following years.
In a nutshell, three-year fixed rates have generally:
Find answers to all your 3-year fixed mortgage rate questions here.
In order to find the best 3-year fixed rate mortgage you must shop around. It is advisable to use rate comparison site like RATESDOTCA to help you find the best 3-year fixed rate. We will help you compare rates in Canada among 50+ financial institutions and quickly provide quotes as you embark on home ownership. You could also reach out to your mortgage broker to fish out the best available rates.
When the term for your 3-year fixed rate mortgage comes to an end, you have the choice either renew your mortgage or pay off the remaining amount all at once. You could either renew or refinance your mortgage if a better or lower rate is available to you and whatever suits your financial needs best.
Yes, you can refinance your mortgage at any time but be ready to pay a penalty if you break the terms of the mortgage. It is advisable to wait till the end of your term to avoid paying extra fee, but if the new available rate is lower and will help you save big bucks in the long run, you could think about bearing the brunt of a one-time penalty. At the end of your 3-year fixed term, you could either pay up the remaining mortgage amount or renew your existing rate with your lender on new terms. You could also refinance your mortgage based on your financial needs.
In January 2023, the Bank of Canada said it expects to pause rate hikes but this pause is conditional and depends upon whether the economy develops as per economists’ predictions and whether inflation continues to fall. With the Bank determined to reach its 2% inflation target in 2024, it is likely that the rates will remain stable for some part of the year before it goes down in later part of the year.
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