Compare the Best Fixed Mortgage Rates in Canada

Discover the lowest fixed rates from the top 20+ banks, lenders, and mortgage providers in Canada.

Step-by-Step Guide

What are Fixed-rate Mortgages?

A fixed-rate mortgage is a loan option that allows you to lock in an interest rate for the duration of your loan term. With a fixed-rate mortgage, your payments remain consistent throughout the life of the loan, even if market conditions change over time.

As soon as you lock in your fixed-rate mortgage in Canada, your term remains the same until the end of your term.

How do fixed rates get determined?

Fixed mortgage rates are determined by the lender and are based on factors such as your credit score, loan amount, down payment size, and other factors. The current market conditions also influence fixed-rate mortgages.

When rates go up or down, lenders usually adjust their fixed rates accordingly. This means that when you apply for a fixed mortgage rate in Canada, the rate you get may be higher or lower than what was advertised.

The yields on Government of Canada Bonds, and more crucially, the complementary bond term, are the most significant factors that affect the fixed mortgage rate at any given moment. Canada’s fixed mortgage rates adjust to match returns on comparable-term government bonds; the lender then adds a surcharge known as the spread. 

Any fixed mortgage rate is determined by the spread or premium that is applied to the bond yield. Due to their spread, mortgage rates will vary amongst mortgage lenders. Based on factors such as intended market share, competition, marketing plan, and overall credit market circumstances, the lender sets their own spread. These factors usually show the lender’s risk associated with a particular mortgage portfolio.

As a result, if one customer has a credit score of 650 and another has a credit score of 720, there may be rate discrepancies between the two consumers even though they have the same mortgage and LTV. Again, the same applies if a person purchases a home in a big metropolis while another does so in a small town. Why? In the event of default, the lender will only be able to sell the rural property slowly. Alternatively, the margin might be bigger if the lender is new to the market and finances less volume. This could also happen if their operating expenses, such as the rent on their brick-and-mortar locations and branches, are higher.

Government Bond yields change every day, but they have no effect on the fixed rates offered by different lenders. The explanation is based on the amount of money that a lender has reserved (purchased) with a particular bond yield. On a daily, weekly, or monthly basis, lenders can evaluate the risk of making a loan, which will impact their spread. This is the fundamental justification for why lenders don’t adjust rates simultaneously until there is a significant shift in the bond market, as at the beginning of the pandemic when the long-term financial outlook was adversely impacted.

At the moment, more than 60% of Canadian homeowners choose a 5-year term for their mortgage renewal, making the 5-year fixed mortgage rates in Canada the most popular option. Additionally, more than 70% of Canadian homeowners choose a fixed-rate mortgage. This is only sometimes the greatest option for everyone; thus, it is advised that you have a qualified mortgage specialist help you make this crucial choice.

Finding the Best Fixed Mortgage Rate

Your risk tolerance, personal preferences, long- and short-term goals, and unique situation all come into play when your mortgage expert determines the optimum fixed rate for you. This enables you to choose the best course of action. The market forecast should also be well-evaluated.

All of these elements weigh heavily on your mortgage fixed rate decision. For example, if you want to relocate to another city in the next few years, a 5-year fixed-rate mortgage may not be the ideal option for you. In contrast, if inflation is rising and the market cycle is likely to last five years, but fixed rates remain low, a longer-term fixed rate may be appropriate for your circumstances. However, the best approach will be determined when your circumstances and risks are considered. By circumstances, we mean that if you are prepared to stay in the same home longer than 7 years, and you would prefer to pay a higher rate on the 7-year fixed mortgage rates to feel secure in the knowledge that your payment will be constant throughout the entire market cycle.

Although only some lenders will agree to offer every term, you can find fixed rate terms of one year, two years, three years, four years, five years, seven years, and ten years. The unavailability is usually because they want to keep their offers competitive in the market. Lenders must strike a balance between providing more options and maintaining the competitiveness of their most popular option.

Choosing a Fixed-Rate Mortgage for Stability

Borrowers must meet the Federal standard approval standards and undergo stress testing. Regardless of the actual rate or duration of the mortgage contract, stress testing implies qualifying on a rate higher than the Bank of Canada Benchmark Rate or the contract rate plus 2%. This stress test is in place to both decreases the lender’s risk and guarantee you can easily afford to repay your mortgage if interest rates rise at the time of renewal.

As times are unpredictable, many people prefer the ability to foresee expenses, especially ones as large and consequential as housing. That stability is provided by Canada’s fixed mortgage rates.

A fixed rate is advantageous for budgeting and provides financial security because of mortgage payments are always known during the term. Fixed mortgage rates in Canada are typically higher, but this is a small price to pay to maintain peace of mind.

While variable mortgages are sometimes more cost-friendly in the long run than fixed mortgages, some consumers prefer to be certain about their mortgage terms throughout the payment period. 

Some experts recommend that first-time house buyers (FTHB) pick a fixed-rate mortgage to have some stability during the mortgage’s first term. By making large monthly commitments (mortgage, condo/maintenance/strata fees, and property taxes) with unchanging sums, individuals can take advantage of the opportunity to save for future emergencies.

Prepayment Penalties with Fixed Rate Mortgages

Prepayment penalties for paying off a mortgage before the end of its term can be extremely high. Even if the mechanism used to determine the fines is the same throughout lenders, the penalty itself is much higher with one lender over another. This is because big banks will keep their stated fixed rate mortgage higher than what they actually give out to clients in order to maintain the discounts higher as well. Higher discounts then result in a higher penalty.

Mortgage borrowers usually believe that the penalty for breaking a mortgage is three months’ worth of interest payments, which is true for the majority of variable-rate and some fixed-rate mortgages. The larger rate of the Interest Rate Differential (IRD) and three months’ interest on the current debt is used to calculate fixed mortgage penalties.

Penalties vary per lender, but the Interest Rate Differential calculation is responsible for the enormous penalties you hear about borrowers paying to break their mortgages. Also, you can expect different penalties on different types of mortgages.

Choosing between variable and fixed rates is really a matter of personal preference and risk tolerance. Choosing a rate or mortgage solution purely on penalties is not the ideal line of action when selecting a financial instrument, especially one with a high value and a long time horizon. We recommend contacting a mortgage expert to analyze any major risks that may cause you to worry over the length of your mortgage.

Frequently Asked Questions

What is the difference between fixed and variable-rate mortgages?

A fixed-rate mortgage has an interest rate that remains constant throughout the duration of your mortgage term. Variable-rate mortgages are linked to a benchmark index, such as the Bank of Canada’s overnight lending rate. As the index fluctuates with changes in the market, so does the mortgage rate.

Are fixed rates always higher than variable?

Fixed rates are usually higher than variable rates due to the security of knowing that your payments will not change with time. The difference between fixed and variable-rate mortgages is affected by economic conditions and may vary from lender to lender.

What is an Interest Rate Differential?

The interest rate differential (IRD) is the difference between your current mortgage rate and the prevailing market rate for a similar product. It’s used by lenders in calculating penalties for breaking a fixed-rate mortgage before its term ends. The higher the IRD, the higher the penalty.