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Rates are based on an average mortgage of $300,000
Rates are based on an average mortgage of $300,000.
Rates are based on an average mortgage of $300,000.
Updated November 15, 2023
A fixed rate mortgage is a type of interest rate on your home loan which remains unchanged for the term of the loan. A 7-year fixed mortgage rate is a type of home loan where the interest rate is fixed for a period of 7 years. This means that the borrower will pay the same interest rate every month for the duration of the 7-year term, regardless of any fluctuations in the interest rates or Bank of Canada’s overnight rate.
At the end of the 7-year period, the interest rate may change to a different fixed rate or variable rate depending on the terms of the loan agreement.
The exact interest rate for a 7-year fixed mortgage will depend on various factors, such as the borrower's credit score, loan amount, and the current economic conditions. It is imperative to shop around and compare different mortgage lenders to find the best rate and terms for your specific financial situation.
Most people don’t get this interest rate type because the 7-year term doesn’t offer enough extra interest rate protection to justify its higher rates compared to the more popular 5-year term. In fact, in any given year, no more than one per cent of borrowers opt for a 7-year mortgage.
In an uncertain economic scenario, or at a time when interest rates are historically low, it would be a good idea to opt in for 7-year fixed rate for a few reasons:
There are several factors that could impact the 7-year fixed rate mortgage such as economic conditions and Bank of Canada’s overnight rate, among others. Here are some factors that can impact 7-year fixed rates:
| Date | Yield on 7-year Canadian Bonds (in %) | Bank of Canada’s Overnight Rate (in %) |
|---|---|---|
| 1/31/2022 | 1.65 | 0.25 |
| 2/28/2022 | 1.67 | 0.25 |
| 3/31/2022 | 2.37 | 0.5 |
| 4/29/2022 | 2.75 | 1 |
| 5/31/2022 | 2.77 | 1 |
| 6/30/2022 | 3.15 | 1.5 |
| 7/29/2022 | 2.57 | 2.5 |
| 8/31/2022 | 3.14 | 2.5 |
| 9/29/2022 | 3.19 | 3.25 |
| 10/31/2022 | 3.27 | 3.75 |
| 11/30/2022 | 2.92 | 3.75 |
| 12/30/2022 | 3.27 | 4.25 |
| 1/17/2023 | 2.78 | 4.25 |
Source: Bank of Canada
The Bank of Canada's overnight rate can have an impact on the yield of 7-year Canadian bonds, although it is not the only factor that affects bond yields.
The overnight rate is the interest rate at which banks lend and borrow money from each other on an overnight basis. When the Bank of Canada raises the overnight rate, it becomes more expensive for banks to borrow money, which can lead to an increase in lending rates and a decrease in borrowing. This, in turn, can lead to a decrease in the demand for bonds, which can put downward pressure on bond prices and upward pressure on bond yields.
However, the impact of the overnight rate on 7-year Canadian bond yields also depends on other factors such as inflation expectations, economic growth, and geopolitical events. If investors believe that inflation will rise, they may demand a higher yield on 7-year Canadian bonds to compensate for the erosion of their purchasing power.
Similarly, if the economy is growing quickly and there are few geopolitical risks, investors may be willing to accept a lower yield on 7-year Canadian bonds, as they are perceived as less risky than other assets.
In summary, while the Bank of Canada's overnight rate can have an impact on the yield of 7-year Canadian bonds, it is not the only factor that affects bond yields, and the relationship between the two is complex and can be influenced by a range of economic and market factors.
We’re hard-pressed to come up with a list of reasons why a 7-year mortgage term makes sense. Generally speaking, almost any other closed term offers better pricing in relation to the protection it offers against rising rates.
In rare cases, however, mortgage shoppers do choose 7-year terms because they need more rate security than a 5-year fixed, but don’t want to pay the higher rate of a 10-year rate. Seven year mortgages also let you out with just a three month interest charge after five years.
It could also be ideal for someone who is seven years away from paying off their mortgage and who wants to avoid the perceived hassle of an additional term renewal in that time (even though the couple hours of time needed to renew could save that borrower a significant amount in rate savings.)
And lastly, there are times when a lender will put 7-year terms on special. That means rates that are almost the same as 5-year terms. That makes them less bad but not a wise choice due to the risk of a big prepayment penalty
We’ve already alluded to some of the potential drawbacks of choosing a 7-year fixed mortgage, but here they are:
If you want to try and predict where 7-year rates are headed in the short term, you can take clues from Canada’s 7-year government bond yield.
While mortgage rates don’t track bond yields precisely over the short term, they do generally follow medium- to longer-term movements.
Discounted 7-year fixed mortgage rates trended downward steadily throughout the late 2000s from a peak of just over 6%. The 7-year fixed mortgage rate hit a high of around 3.64% in late 2018, and broke below 2% briefly in late 2020. Those rates didn’t last long.
In April 2021, mortgage shoppers could find nationally available 7-year fixed rates for as low as 2.64% (or lower in certain provinces).
As of February 2023, uninsured 7-year fixed mortgage rate hovers around 5.64% which is lower than the 10-year fixed rate mortgage by 0.30%.
Over the past decade, 7-year fixed rates have generally:
There are several factors you could consider before deciding to zero in on the 7-year fixed mortgage rate. Here are a few tips you could think about when deciding whether you want to go with a 7-year fixed rate mortgage or not:
Still got more questions about 7-year fixed rate mortgage? Find the answers here:
The best way to find the lowest 7-year fixed rate mortgage for you is by comparing different mortgage lenders. RATESDOTCA allows you to compare 30+ lenders in an instant and finds you the best rate suitable to your financial needs. It is also advisable to reach out to a mortgage broker or advisor who can help you find the rate that fits your financial goals.
At the end of your mortgage term you will have two options – refinance or pay off the remaining mortgage amount. Some lenders may allow you to renew the fixed rate on your mortgage for another term, such as another 7 years. If you choose to do this, you'll likely need to apply for a new mortgage and go through the approval process again.
If you can't renew your fixed rate or if you want to change your mortgage terms, you may need to refinance your mortgage. This means applying for a new mortgage with new terms and paying off the remaining balance on your current mortgage. In this case you will have to go through credit check and mortgage stress test again.
At this time, when the Bank of Canada has decided to pause interest rate hike after eight consecutive hikes since March 2022, economist believe the interest rates will start going down later this year or next year. If you cannot handle the stress of going through another rate change cycle and would like to stay put in your home for 7 year, then you could think of getting a fixed rate mortgage for 7 years. However, the longer the mortgage term, the greater the odds you will have to renegotiate your mortgage before maturity. And that can cost you dearly.
So, to take the best decision based on your financial goals, it is important to discuss with a mortgage agent and take an informed decision.
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