Compare current 1-year mortgage rates from Canada's top lenders. Short-term mortgage solutions with competitive rates.
A 1-year mortgage is a home loan where the interest rate and other terms are locked in for just one year. After that year is over, you must either renew your mortgage with your current lender or shop around for a better deal. This type of mortgage is considered a short-term option and can be either fixed or variable, although fixed rates are more common for 1-year terms.
Unlike longer-term mortgages that provide rate certainty over multiple years, a 1-year term resets quickly, which means you may see significant changes in your payments depending on where interest rates go. While this short term might seem risky to some, it provides flexibility to others who are watching the market and want the freedom to switch terms or lenders in the near future.
A 1-year mortgage may be a good idea for homeowners who expect interest rates to fall or for people who are planning to move or refinance soon. For example, someone buying a starter home who knows they’ll sell it in a year might prefer not to be tied to a long-term mortgage contract.
However, the short-term nature comes with downsides. You’ll have to renew more often, which means doing more paperwork, renegotiating terms, and possibly facing higher rates. If interest rates rise over that year, your next term could cost you significantly more. This is why 1-year mortgages are often seen as more suitable for experienced borrowers who actively monitor the market.
As of 2025, 1-year mortgage rates in Canada are somewhat higher than in past years due to the Bank of Canada’s response to inflation. The central bank has raised its policy rate several times over the last couple of years to cool down inflation, and this has affected all types of borrowing, including mortgages.
Short-term fixed rates, including 1-year terms, are directly influenced by the Bank of Canada's overnight lending rate. When that rate goes up, mortgage lenders raise their rates as well. In 2025, average 1-year mortgage rates range between 5.3% and 5.8%, depending on the lender and borrower profile.
Lenders are also factoring in risks tied to the economy, which adds a \"risk premium\" to short-term rates. Some banks might offer lower promotional rates, but these are often for borrowers with excellent credit scores and low debt levels. It’s important to look beyond just the advertised rate and consider the full terms and conditions.
Economists expect that if inflation continues to come under control, rates could slowly start to come down in late 2025 or 2026. This means that some borrowers are using 1-year mortgages as a bridge — locking in for a short time now, with the hope of refinancing at lower rates next year.
A 1-year mortgage isn’t for everyone, but it can be the perfect fit for certain types of borrowers. For example, if you’re planning to sell your home in the next 12 to 18 months, it might not make sense to lock yourself into a 5-year term mortgage. A 1-year term allows you to pay less in early termination fees and gives you more freedom.
It also works well for people who believe that interest rates will drop in the near future. Rather than locking in today’s higher rate for 5 years, they may prefer to accept a 1-year rate and then renegotiate next year when rates are hopefully lower. This strategy can be risky, though, especially if rates continue to rise.
Business owners or people with variable income might also prefer the flexibility of a 1-year term. If you’re not sure what your finances will look like next year, it’s better to avoid a long-term commitment. Similarly, real estate investors often use 1-year terms because their investment strategies require frequent refinancing.
You should also consider your tolerance for risk. If you’re the kind of person who gets nervous about rate increases or unpredictable monthly payments, a 1-year term may not offer the peace of mind you need. You’ll be facing a new negotiation every 12 months, and each renewal could bring a surprise.
Getting the lowest possible rate isn’t just about choosing the right lender — it’s about preparing yourself to be a strong borrower. One of the most important things you can do is improve your credit score. Pay your bills on time, reduce your credit card balances, and avoid applying for too many new loans.
Also, make sure your debt-to-income ratio is in good shape. Lenders want to see that you have enough income to cover your mortgage payments and other financial responsibilities. If you have a lot of other debt, like car loans or student loans, consider paying some of that down before applying for a mortgage.
Once you’re ready to start comparing rates, don’t settle for the first offer. Shop around. Talk to different banks, credit unions, and online mortgage lenders. Many borrowers also use mortgage brokers, who can access deals that you might not find on your own. Ask questions about fees, prepayment options, and renewal terms — not just the interest rate.
Some lenders offer discounts for things like setting up automatic payments or using other financial products, like a checking account. These small extras can add up. Also, consider the timing of your application. Some banks run limited-time offers in spring or fall to attract new customers.
Finally, don’t be afraid to negotiate. If you’ve done your homework and found better rates elsewhere, tell your lender. They may be willing to match or beat the rate to keep your business.
When you choose a 1-year mortgage, you usually have the option to pick a fixed or variable interest rate. A fixed rate stays the same for the whole year. A variable rate can change during that time, depending on the prime rate set by your lender.
Fixed rates are more predictable. You know exactly how much you’ll pay each month, which makes budgeting easier. For many homeowners, this peace of mind is worth the slightly higher rate that often comes with fixed terms. It’s a good choice if you’re worried about rates rising over the next year.
Variable rates, on the other hand, can be lower to start with, but they carry more risk. If the Bank of Canada raises rates again, your mortgage payments could increase. Some lenders offer variable-rate mortgages with fixed payments, but in that case, more of your payment goes toward interest and less toward principal when rates rise.
In today’s climate, many borrowers are leaning toward fixed rates, even for short terms. That’s because the outlook for inflation and interest rates is still uncertain. However, if you’re confident that rates are going down, a variable rate could help you save money over the next year. Just be sure you have room in your budget for higher payments if needed.
It’s easy to focus on the interest rate alone, but there are many other costs involved in taking out a 1-year mortgage. These include closing costs, renewal fees, legal fees, appraisal costs, and sometimes even discharge fees if you switch lenders.
Interest costs are based on the rate and the size of your mortgage. For a $400,000 mortgage at a 5.5% interest rate, you’d pay around $22,000 in interest over one year. That’s without even touching the principal. If you’re making regular payments that include both interest and principal, your total payments will be higher, but you’ll be reducing your loan balance at the same time.
Renewal costs might seem small, but they can add up. Some lenders charge administrative fees when you renew. Others may offer a low initial rate but charge more on renewal. Legal fees and appraisal costs usually apply only during the first mortgage term, but if you change lenders, you might have to pay them again.
Discharge fees apply if you leave your lender early. While these fees are usually lower for short terms, they’re still worth checking before you make a move. Make sure your mortgage agreement doesn’t include penalties that make switching too expensive.
Renewing a mortgage every year may sound like a hassle, but it’s part of the deal when you choose a 1-year term. Most lenders will contact you about 30 to 90 days before your renewal date. They may offer you a new term and rate, or you can shop around for a better deal.
Don’t wait until the last minute. Start reviewing your options at least three months before your renewal date. This gives you time to compare rates, talk to mortgage brokers, and even switch lenders if needed. If you’re organized, the process doesn’t have to be stressful.
When renewing, be sure to re-evaluate your financial goals. Has your income changed? Are you planning any major life changes like moving, renovating, or retiring? Your mortgage should fit your plans, not the other way around.
It’s also a great time to look at other terms. You don’t have to renew for another year. You could move to a 2-year, 3-year, or 5-year term if the rates are better or if your financial situation is more stable.
Deciding between a 1-year mortgage and a longer term depends on your personal situation and the market outlook. A 1-year mortgage gives you more flexibility. You can take advantage of falling rates and avoid being stuck in a long-term contract. But this comes with more uncertainty. Your rate could be higher next year, and you might face frequent renewal stress.
Longer terms like 3-year mortgages provide more security. Your rate stays the same for several years, which makes it easier to plan your budget. This is especially important if you’re on a fixed income or if you’re worried about rising rates.
Many financial advisors recommend longer terms in uncertain economic times. Even if the rate is slightly higher now, it could save you money and stress later. However, if you’re confident that rates will go down soon — and you can handle a potential increase — a 1-year term could be a smart move.
Before choosing, ask yourself: Do I need flexibility or stability? Am I comfortable with risk? What direction do I think the economy is heading in? Your answers will help guide your decision.
Can I lock in a renewal rate early?
Yes, many lenders let you lock in a new rate 30 to 120 days before your renewal date.
What happens if interest rates rise after my 1-year term ends?
Your payments could go up, which might stretch your budget. It’s important to plan for this possibility.
Are 1-year mortgages more expensive overall?
Not always. The total cost depends on the rates you get and how often you renew. Sometimes you can save money by switching each year.
Can I switch lenders after 1 year?
Yes, but it may involve fees and paperwork. Make sure the savings are worth the cost of switching.
Are there any tax breaks for 1-year mortgages?
No, not unless the property is used to earn income. For personal residences, mortgage interest is not tax-deductible in Canada.
Many experts believe mortgage rates will gradually fall as inflation cools. The Bank of Canada is watching inflation closely and may lower its policy rate later in 2025. This would lead to lower variable rates and possibly lower fixed rates.
That said, nothing is guaranteed. Geopolitical events, supply chain issues, and other surprises could keep inflation high. It’s smart to stay informed, talk to financial advisors, and avoid making assumptions.
Watch updates from major banks and mortgage rate forecasts every few months. This can help you time your renewal or refinancing more strategically.
A 1-year mortgage is a useful tool in the right situation. It gives you flexibility and can help you save money if rates go down. But it also brings more uncertainty and requires more frequent decision-making. Make sure you understand the risks and benefits, compare different lenders, and choose a term that fits your personal and financial goals.
Whether you go with a 1-year term or something longer, always plan ahead and stay informed. Your mortgage is one of the biggest financial decisions you’ll make — it deserves careful thought.