Hitting your mortgage goals doesn't always mean choosing a 5-year rate.
Here's when choosing a shorter term of 1 to 4 years might make budget sense.
Amid economic volatility, or when 5-year fixed mortgage rates are higher or rising, some home buyers and owners consider shorter mortgage terms, such as a 2- or 3-year fixed rate, as a middle-ground option for their budget strategy.
The popular 5-year term (for both fixed and variable rates) can offer great rates while giving you more time without managing renewals. But with changing prime rate forecasts and recent fixed-rate market pressures:
Enter the short-term fixed rate, which is often lower than a 5-year fixed. It could save you money compared to a higher rate, but it also lets you renew sooner, which carries its own risk, since you won't know what rate may be waiting for you.
Let's explore shorter-term fixed rates as a short- or long-term budget strategy.
In most cases, 2- and 3-year fixed mortgage rates can be about 0.20% to 0.30% cheaper than a 5-year fixed. A 1-year fixed rate tends to be a bit higher than a 5-year, as lenders have to absorb admin costs over a shorter period.
When does it make sense to lock in to a lower rate for less time?
Compared to the risk of change with a variable rate, a short-term fixed rate can offer some budget room while giving you more payment certainty.
If your short-term rate is higher than a 5-year fixed (like a 1-year rate), you may still save if you think renewal rates will be lower.
During economically stable times, short-term fixed mortgage rates tend to be lower than 5-year fixed rates. Why? Because the mortgage contract is for less time, it means the lender's costs are lower, there's less risk that you'll default, and they don't mind the chance you'll pay a different rate sooner.
So, if you keep locking in a low, shorter-term mortgage rate, term after term, you may save more than going with a higher 5-year rate, term after term.
A short-term fixed rate isn't without risk. Renewing more often means choosing a new rate more often. Of course, you can change your mind at renewal and choose a different rate or term length if the markets don't give you confidence to continue your short-term strategy.
Take our Compare & Save calculator for a spin to see how much you could save now with a short-term fixed rate. An expert True North broker can offer unbiased advice based on your unique mortgage details.
Fixed rates are currently under pressure from geopolitical events that have raised oil prices and introduced trade tariffs that threaten to raise inflation both in Canada and globally.
Keep an eye on fixed-rate movements and prime rate forecasts to help inform your mortgage rate strategy.
Our highly trained, salaried True North Mortgage brokers know the rate trends and can access a wide range of lenders to find your best mortgage, while passing along a volume rate discount to secure your best rate.
Every mortgage is different, and so are your needs. We'll help you decide what level of risk suits your situation based on your homeownership goals and comfort level.
Our rates are 0.18% lower on average compared to everyone else. Prove it? Okay!
Why do different terms have different rates? Learn more about the inner workings.
Continually updated. Where rates may go now and later — and what’s driving them.
