Fixed Rate Mortgage Rates in Canada
If you're thinking about buying a home, one of the biggest decisions you'll make is choosing the right type of mortgage. In Canada, one of the most common and trusted options is a fixed rate mortgage. This type of mortgage offers predictable payments and protection against interest rate increases, which can make it easier to plan your finances and feel confident in your homeownership journey.
This article will guide you through everything you need to know about fixed rate mortgages in Canada. You'll learn how they work, how they compare to variable rate mortgages, what affects the rates you see, and how to qualify for the best offers. We'll also cover important tips, potential risks, and frequently asked questions so you can make a fully informed decision.
What Is a Fixed Rate Mortgage?
A fixed rate mortgage is a home loan where the interest rate remains the same throughout the term of the mortgage. The term is the length of time you agree to keep your current mortgage agreement, which is typically between one and ten years. The most popular term in Canada is five years.
What makes this mortgage type attractive to many homeowners is its stability. Since the interest rate doesn’t change, your monthly payments will stay the same throughout the entire term. This means you can plan your budget knowing exactly how much you owe each month, with no surprises.
When you first take out a fixed rate mortgage, the lender will calculate how much you need to pay based on the interest rate, your loan amount, and the amortization period, which is usually 25 or 30 years. Your payments will cover both interest and principal, and as time goes on, you will pay down more of the principal and less interest, even though the total payment stays the same.
Fixed Rate vs. Variable Rate Mortgages
When you shop for a mortgage in Canada, you'll usually have to choose between a fixed rate and a variable rate. Understanding the differences between these two options is important because it affects how much you'll pay and how much risk you're willing to take on.
With a fixed rate mortgage, you lock in an interest rate that doesn't change for the entire term. That means if interest rates in the broader market go up, your rate stays the same. You don't benefit if rates drop, but you also don't suffer if they rise. This can provide peace of mind, especially if you're on a tight budget or if you expect interest rates to rise.
In contrast, a variable rate mortgage has an interest rate that can change over time. The rate is usually based on your lender's prime rate, which is tied to the Bank of Canada's overnight rate. If that rate goes up, your mortgage rate might go up too, and the same applies if it goes down. Depending on your lender, your payments might stay the same while the portion that goes toward interest and principal changes, or your payment amount might go up or down.
Variable rate mortgage rates can save you money when interest rates are low, but they carry more risk. If you're comfortable with some uncertainty and have room in your budget, you might consider going variable. But if you want the security of knowing exactly what you'll pay every month, fixed is usually the safer choice.
What Affects Fixed Mortgage Rates in Canada?
Many people are surprised to learn that mortgage rates in Canada aren't set by the government or a single authority. Instead, rates are influenced by a mix of economic factors, lender decisions, and your personal financial situation.
One of the biggest factors affecting fixed mortgage rates is the bond market, especially government bond yields. Lenders use these bonds to fund mortgages, particularly the 5-year Canadian bond, which heavily influences 5-year fixed mortgage rates. When bond yields go up, lenders usually raise their fixed mortgage rates to keep their profit margins steady.
The Bank of Canada also plays a role. While its interest rate decisions directly affect variable rates, they also shape the economy and investor expectations. If the Bank signals that inflation is rising and that more rate hikes are likely, bond yields often increase in anticipation, which in turn drives fixed mortgage rates higher.
Lenders also factor in their operating costs and desired profit margins. These include the cost of borrowing, the risk of lending, and competition in the mortgage market. A lender may offer lower rates to attract customers or keep rates high to maintain strong profits.
Your personal financial details matter too. Lenders assess your credit score, income, down payment, and debt levels when offering you a rate. People with high credit scores, low debt, stable income, and larger down payments are seen as less risky and may be offered lower rates. If you have a smaller down payment or a weaker credit profile, you might still get approved, but at a higher rate.
Today's Best 5-Year Fixed Mortgage Rates
In Canada, the 5-year fixed mortgage is by far the most popular option. It provides a good balance between rate stability and flexibility. You get five years of steady payments, which helps with budgeting, and you don’t have to worry about renewing your mortgage too often.
When looking at mortgage rates online or in advertisements, you'll often see two types of rates: posted rates and discounted rates. Posted rates are the official rates shown by banks and credit unions, but almost no one actually pays these. They're often used to calculate penalties or renewals, not real offers. Discounted rates are the actual rates that lenders are willing to offer to qualified borrowers, and these are the ones you should focus on.
Comparing rates between lenders is a smart move, but it’s also important to look at the fine print. Some rates come with conditions, such as locking you in with high penalties if you break the mortgage early or restricting your ability to make extra payments. That’s why it’s helpful to work with a mortgage broker or advisor who can explain the details.
How to Qualify for the Best Fixed Rate
Not everyone gets access to the best mortgage rates. Lenders reserve their lowest rates for borrowers who meet certain criteria, so it’s worth preparing in advance to put yourself in a strong position.
Your credit score is one of the most important factors. A score of 680 or higher is usually considered good, and anything above 740 is excellent. If your score is lower, you might still qualify for a mortgage, but the rate will likely be higher because the lender sees more risk.
Your debt-to-income ratio is another big factor. Lenders will look at how much of your monthly income goes toward paying debts like car loans, credit cards, and the new mortgage. If too much of your income is already committed to debt, you may not qualify or may be offered a higher rate. Paying down debts before you apply can help improve your chances.
A larger down payment can also help. Putting down 20% or more of the home’s price means you won’t need mortgage default insurance, which can reduce your total borrowing costs. It also shows the lender that you're financially stable.
Lenders also prefer borrowers with steady, proven income. If you’ve been in your job for a long time or have a reliable source of income, you’re more likely to be approved at a lower rate. Self-employed borrowers may need to provide extra documents to prove their income.
Hidden Costs and Fine Print to Watch Out For
Even with a fixed rate mortgage, there can be extra costs and rules that catch people off guard. It’s important to read the fine print and ask questions before signing anything.
One major cost to watch out for is the prepayment penalty. If you decide to pay off your mortgage early, refinance, or move before your term is up, you might have to pay a fee. For fixed rate mortgages, this is often calculated using the interest rate differential (IRD), which can be thousands of dollars depending on your rate and how much time is left on your term.
You should also check if your mortgage is portable. Porting means you can transfer your mortgage to a new home without breaking it. This can be helpful if you move during your term. Not all mortgages allow this, and some have strict rules or deadlines you must meet.
Another important feature is your prepayment privileges. Some lenders let you pay extra toward your mortgage each year without penalty, which can help you pay it off faster and save on interest. Others may limit how much extra you can pay or charge fees for doing so.
Lastly, not all lenders are the same. Some offer lower rates but have limited customer service, while others offer more flexible terms at slightly higher rates. Make sure you understand what you’re getting and who you’re dealing with.
Should You Lock In a Fixed Rate Now?
Deciding when to lock in a fixed rate can be tricky, especially when the economy is uncertain. Rates change based on many factors, including inflation, government policy, and market conditions.
If rates are rising, locking in a fixed rate now can protect you from paying more later. Even if fixed rates seem higher than they were a year ago, they might still be lower than where they’re headed. Locking in gives you stability and removes the worry of future increases.
However, if rates are expected to drop, you might consider waiting or choosing a variable rate instead. That said, trying to time the market perfectly is difficult, and waiting too long can backfire if rates go up faster than expected.
You should also think about your personal situation. If you're planning to stay in your home for a long time and want steady payments, a fixed rate is likely a better fit. If you're more flexible or expect to move soon, a variable rate or shorter term might be worth considering.
Talking to a mortgage broker or advisor can help you understand what’s happening in the market and what makes the most sense for your situation.
Frequently Asked Questions (FAQs)
Can I break my fixed rate mortgage early?
Yes, but you may face a penalty. The cost depends on your lender and how they calculate it. Fixed rate mortgages usually have higher penalties than variable ones, especially if rates have dropped since you signed.
Can I switch from variable to fixed later?
Some lenders allow you to convert your variable rate mortgage to a fixed one during your term. However, you might not get the best fixed rate available, so it’s worth comparing before you switch.
Is a 10-year fixed mortgage a good idea?
A 10-year term can offer long-term stability, but the rates are usually higher. It might be a good choice if you plan to stay in your home for a long time and want to avoid renewing your mortgage often.
What are accelerated payments?
Accelerated payments let you pay off your mortgage faster by increasing how often you pay. For example, accelerated bi-weekly payments result in one extra monthly payment each year, reducing your total interest and helping you become mortgage-free sooner.
Should I use a broker or go directly to a bank?
Both options can work. Mortgage brokers can compare many lenders and may help you find a lower rate. Banks may offer loyalty perks or bundled products. It’s a good idea to shop around and compare before deciding.
Use Dollarwise to Compare Fixed Rates
Fixed rate mortgages are a smart choice for many Canadians who want predictable payments and protection from rising interest rates. With so many lenders and offers out there, it’s important to understand how mortgages work, what affects the rates you see, and what to watch out for in the fine print.
By learning the basics, improving your financial profile, and comparing options carefully, you can find a fixed rate mortgage that fits your needs and budget. The table at the top of this page shows some of the best fixed rate mortgage rates in Canada today. Use it to start your search, then talk to a lender or broker to find the mortgage that works best for you.