3-Year Mortgages
Three-year mortgage terms are gaining popularity among Canadian homeowners and buyers who want a blend of stability and flexibility. A 3-year term offers more security than shorter-term mortgages like 1-year or 2-year options, but still allows you to reassess your financial strategy sooner than a 5-year mortgage term would. In this article, we’ll take a detailed look at 3-year mortgage rates in Canada, who they suit best, the trends shaping rates in 2025, how to get the most competitive offers, and how to handle renewals when your term is up. We’ll also compare fixed and variable rates and help you decide whether a 3-year mortgage is the right move for your financial goals.
What is a 3-Year Mortgage?
A 3-year mortgage is a home loan where the interest rate and terms remain fixed or variable for three years. At the end of the term, you’ll need to renew your mortgage by negotiating a new agreement with your current lender or switching to a different lender. This mid-range option gives borrowers more time between renewals compared to 1- or 2-year terms while offering greater flexibility than a 5-year lock-in.
Three-year mortgages work well for homeowners who want to avoid being locked into a long-term contract during times of economic uncertainty. Fixed 3-year terms offer peace of mind through stable monthly payments, while variable 3-year terms can provide the opportunity for lower rates, depending on market conditions. If you're not quite ready to commit to a longer term, or you expect significant financial or life changes in the next few years, a 3-year mortgage term can offer the breathing room you need.
However, it’s important to weigh the potential trade-offs. Compared to longer terms, 3-year mortgages may come with slightly higher rates in certain economic climates. You’ll also need to consider the costs and effort of renewing in three years. Still, for many borrowers, these trade-offs are worth the added flexibility.
Current 3-Year Mortgage Rate Trends in Canada (2025)
As of 2025, 3-year mortgage rates in Canada typically fall within the 5.0% to 5.5% range, depending on the lender, borrower profile, and whether the mortgage is insured. This places them slightly below 2-year rates and just a touch higher than some of the best 5-year rates available.
The Bank of Canada’s ongoing battle with inflation continues to influence rate trends. Although inflation has started to cool, rates remain elevated compared to historical averages. As a result, many borrowers are choosing 3-year terms to avoid locking in high rates for too long while still gaining some short-term stability.
Some lenders are offering promotional deals on 3-year terms to attract borrowers looking for a compromise between flexibility and rate security. These offers may include limited-time interest discounts or bundling options with other financial products. However, it’s important to look beyond headline rates and carefully examine the conditions and fees attached.
Factors currently affecting 3-year mortgage rates include:
- Inflation expectations
- Global economic stability
- Unemployment trends
- Government fiscal policy
Staying informed about these broader trends will help you time your mortgage application or renewal more effectively.
Who Should Consider a 3-Year Mortgage?
A 3-year mortgage is an excellent option for borrowers who want more payment predictability than a 1- or 2-year term but aren’t ready for the long-term commitment of a 5-year mortgage. If you're in a career that might require relocation in a few years, or you’re planning to upgrade or downsize your home soon, a 3-year term may align better with your life plans.
This type of mortgage is also ideal for individuals who anticipate that interest rates will decrease moderately over the next few years but prefer not to risk short-term rate spikes. Locking into a 3-year fixed rate provides a safety net without tying you to potentially outdated rates far into the future.
Real estate investors may choose 3-year terms for properties they plan to hold and improve before selling or refinancing. Similarly, homeowners planning renovations or expecting a financial windfall (like an inheritance or stock payout) may benefit from a mid-term mortgage that allows for strategic refinancing when their situation improves.
If you dislike dealing with frequent renewals and want to avoid the higher interest rate volatility of 1-year terms, the 3-year mortgage offers a more balanced option. Just be sure that your financial plans align with the term so you don’t face unnecessary penalties if you need to break the mortgage early.
How to Get the Best 3-Year Mortgage Rates
Getting a competitive 3-year mortgage rate depends on preparation and knowing where to look. Lenders assess several factors when offering you a rate, including your credit score, employment history, income level, debt load, and down payment size.
Improve your credit score by paying all your bills on time and keeping your credit utilization low. A score above 720 will usually qualify you for the best rates, while scores under 650 may limit your options or increase your costs.
Lower your debt-to-income ratio by paying down existing loans, and if possible, increase your down payment. A larger down payment means a lower loan-to-value (LTV) ratio, which lenders see as less risky.
Compare offers from banks, credit unions, and online lenders. Use comparison websites to see a wide range of options side by side. Mortgage brokers can also help you access exclusive rates and may be able to negotiate on your behalf. Don’t be shy about using offers from one lender as leverage with another.
Look beyond just the interest rate—consider prepayment privileges, renewal conditions, penalties, and customer service reputation. A slightly higher rate might be worth it if the lender offers flexible features that align with your goals.
Comparison: Fixed vs. Variable 3-Year Mortgage Rates
Three-year mortgages are available with both fixed and variable rates. Understanding the pros and cons of each will help you choose the right option for your risk tolerance.
A fixed-rate mortgage locks in your rate for the full three years. This makes budgeting easier and provides peace of mind in a rising-rate environment. Your payments remain stable even if the Bank of Canada raises interest rates. This is particularly useful if you’re on a fixed income or managing a tight household budget.
A variable-rate mortgage changes along with your lender’s prime rate, which moves in step with the Bank of Canada’s rate decisions. While variable rates often start lower than fixed rates, they can increase unexpectedly, making monthly payments less predictable. Some variable-rate mortgages have fixed payments, which adjusts how much of your payment goes toward interest versus principal.
In 2025, most borrowers still favor fixed rates, given the lingering uncertainty about when interest rates will begin to fall. However, for borrowers with high risk tolerance and financial flexibility, a variable rate might offer savings if rates begin to decline within the next 12–24 months.
Breaking Down the Costs of a 3-Year Mortgage
The full cost of a 3-year mortgage includes more than just the interest rate. Consider all the related expenses to understand what you’ll truly pay over the term.
Let’s say you have a $400,000 mortgage at a 5.2% fixed rate. Over three years, you might pay about $62,400 in interest, depending on your amortization schedule. Monthly blended payments (which include interest and principal) could range from $2,200 to $2,600 depending on your term and payment frequency.
Other costs include:
- Legal and closing fees: $1,000–$2,500
- Appraisal fees: $300–$500
- Title insurance: $200–$400
- Renewal or administration fees: $100–$300
- Discharge fees: $200–$400 if you switch lenders at renewal
- Prepayment penalties: Can be substantial if you break a fixed-rate mortgage early
If you expect to pay off the loan early or sell the property within three years, make sure your lender offers flexible prepayment options or low penalties. Otherwise, breaking your mortgage early could wipe out any rate savings you hoped to achieve.
Renewing Your 3-Year Mortgage
When your 3-year term ends, you’ll receive a renewal offer from your lender. This is your opportunity to review your finances and make sure your next mortgage aligns with your goals. Don’t accept the renewal offer blindly—it may not be the best available rate.
Start comparing rates at least 90 days before your renewal date. If you have a strong payment history and good credit, you may qualify for better rates than you did three years ago. Speak with a mortgage broker or shop around online to compare renewal options.
Consider whether your financial situation has changed. Are you earning more? Do you have less debt? Are you planning to sell, downsize, or retire? These factors should influence your decision on whether to stick with another 3-year term, go longer, or perhaps choose a shorter term if rates are falling.
Switching lenders at renewal can save you money, but remember to factor in costs like legal and administrative fees. Some lenders will cover the cost of switching to win your business, so ask about incentives.
Is a 3-Year Mortgage Right, or Should You Pick a Longer Mortgage?
A 3-year mortgage is a good fit if you want to hedge your bets. It provides a medium-term commitment with moderate flexibility. But depending on your financial goals, a longer or shorter term might be a better match.
Choose a 3-year mortgage if:
- You want stability but don’t want to lock in for five years.
- You expect rates to improve but not immediately.
- You’re planning moderate life changes in 2–4 years.
Choose a longer mortgage if:
- You want long-term security and stable payments.
- You think rates will rise and want to lock in now.
- You prefer to avoid renewing frequently.
In contrast, opt for a shorter term like a 1- or 2-year mortgage if you believe rates will fall soon and you’re comfortable with more frequent renewals.
FAQs: Common Questions about 3-Year Mortgages
Can I break a 3-year mortgage early?
Yes, but you may face prepayment penalties, especially with fixed-rate mortgages.
Are 3-year rates usually higher or lower than 5-year rates?
They can be higher or lower depending on the market. In stable or rising rate environments, 3-year rates may be lower.
Can I switch lenders at renewal?
Yes. You can shop around and transfer your mortgage to another lender without penalty when your term ends.
Is mortgage insurance required for a 3-year term?
Only if your down payment is under 20%. The term length doesn’t affect insurance requirements.
What if I want to refinance before the term ends?
You’ll likely pay a penalty, so check your mortgage agreement or speak to your lender first.
Expert Predictions on Future Mortgage Rates
Economic analysts suggest that interest rates could start falling by late 2025 or early 2026 if inflation continues to ease. However, if inflation remains stubborn or if global markets experience new disruptions, rates could stay elevated or even rise further.
Choosing a 3-year term now may position you well to refinance in a more favorable rate environment in a few years. Still, monitor Bank of Canada announcements and keep in contact with your mortgage broker to stay ahead of major shifts.
Use Dollarwise to Compare 3-Year Mortgage Rates
A 3-year mortgage provides a balanced option for homeowners looking for a mix of rate stability and short-term flexibility. It’s a great choice for people planning changes in the next few years or those who want more certainty than 1- or 2-year terms without the full commitment of a 5-year mortgage.
As always, compare your options carefully, understand the full cost of your loan, and match your mortgage term to your long-term plans. With the right approach, a 3-year term can be a strategic and cost-effective mortgage solution.
Want to find the best 3-year mortgage rates in Canada? Use our comparison tool at the top of this page to see live offers from trusted lenders. For personalized advice, connect with a mortgage broker today and make your next term work smarter for you.