Find the Best 5-Year Fixed Mortgage Rates in Canada

What is a 5-year fixed-rate mortgage?  

The interest rate on a fixed-rate mortgage remains the same throughout the term of the mortgage. It does not increase or decrease with the change in overnight prime rate by the Bank of Canada. A 5-year fixed-rate mortgage stays the same for the five-year period of the mortgage term. The interest rate and mortgage payments do not fluctuate until it's time for renewal or the borrower decides to refinance.

The term of the mortgage is five years. This refers to the length of time the provisions of your mortgage are in effect. If the borrower decides to get out of the mortgage before the end of five years, they will have to pay a penalty or prepayment charge to the lender.

In the last two years, from 2022-2023, high inflation has led to rapidly increasing interest rates which has caused the cooling of housing markets across Canada and decelerated mortgage growth.

Mortgage borrowers are opting for shorter-term fixed-rate mortgages, with fixed-rate 5-year mortgages falling to less than 15% of new mortgages, and variable-rate mortgages dropping to less than 20% of new mortgages, according to the CMHC Residential Mortgage Industry Report.

Since Q3 2022, the fixed-term lending rate has been lower than the variable rate. Moreover, since June 2022, federally regulated financial institutions have lent more funds for new and renewed mortgages under fixed-rate agreements than variable-rate agreements. In fact, this

is a return to pre-pandemic norms. However, fixed-rate mortgages of 5 years or more are no longer the most-popular option.

5-year Canadian bond yields vs. 5-year conventional mortgage rates

^Sources:

^{https://www.bankofcanada.ca/rates/banking-and-financial-statistics/posted-interest-rates-offered-by-chartered-banks/}

^{https://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/}

Bond prices and yields are always at risk of fluctuating value, especially when interest rates rise or fall. A bond's price and yield are also inversely related. As the price of a bond goes up, the yield decreases and vice versa. Understanding bond yields is key to understanding expected future economic activity and interest rates. That helps inform everything from stock selection to deciding when to refinance a mortgage. When interest rates are on the rise, bond yields generally go up as well. When interest rates are lower, bond yields tend to fall.

Prime rate, Bank of Canada's policy interest rate and the 5-year fixed personal term

^{Source: https://www.bankofcanada.ca/rates/banking-and-financial-statistics/posted-interest-rates-offered-by-chartered-banks/}

The prime rate, or prime lending rate, is the interest rate a financial institution uses as a base to determine interest rates for loan products. Each financial institution sets its own prime rate as a function of its cost of funding, which, in turn, is influenced by the target for the overnight rate set by the Bank of Canada.

As of Oct. 31, 2023, the Bank of Canada's overnight rate stands at 5%. The central bank aims to bring inflation down to its target of 2% by 2024.

A 5-year personal fixed term typically refers to a loan or financial product where the interest rate and other terms are fixed and remain unchanged for a period of five years. This can apply to various financial products, such as a 5-year fixed-term mortgage, a 5-year fixed-term personal loan, or a 5-year fixed-term savings account.

The above data shows the trend in these rates and terms depending on the changes in the Bank of Canada's policy interest rates which are subject to changes depending upon the economic situations.

Five-year fixed rate predictions

Bond yields have increased in the Q2 2023 following the Bank of Canada's consistent rate hikes to curb inflation, with the 5-year yield reaching over 4% for the first time since 2007 before slightly lowering. Mortgage rates have also risen, surpassing the highs from October 2022.

This makes buying a typical home in Canada more expensive, with monthly payments going up by nearly $400, or 12%, in Q2 2023. As a result, mortgage demand has weakened, showing the slowest growth rate since 1999.

While the mortgage industry faces challenges now, it's important to take a longer-term perspective. Canada's growing population and a tight rental market mean that the demand for housing will persist, even with higher rates.