Find the best 5-year fixed mortgage rates in Canada

October 23, 2024 Bank of Canada announcement update

On October 23, 2024, the Bank of Canada made its fourth consecutive rate cut, reducing the Overnight Lending Rate by 50 basis points to 3.75%. This marks a cumulative decrease of 125 basis points since the rate peaked at 5% between July 2023 and June 5th of this year.

• The central bank cited a significant decline in inflation as the primary reason for this larger-than-usual cut, with Canada’s Consumer Price Index (CPI) falling to 1.6% in September, well below the BoC’s 2% target. Weak GDP growth and five consecutive quarters of declining GDP per capita supported the decision.
• For Canadians with variable-rate mortgages or home equity lines of credit (HELOCs), this news is welcome relief, as their borrowing costs will drop further with prime rates set to fall to 5.95%. This could reduce their monthly payments or shift a greater portion of those payments toward the principal.
• While fixed mortgage rates are not directly impacted by BoC rate cuts, lenders could start to lower their fixed-rate offerings as five-year bond yields have already dipped to 2.9% in response to the cut.
• Prime-based savings products, such as high-interest savings accounts and GICs, will offer lower returns after this cut. Savers and passive investors should consider locking in current rates before they drop further.
• Despite this cumulative 125-basis-point reduction, it remains uncertain how much of an impact these cuts will have on the housing market. Many potential home buyers are still waiting on the sidelines for further reductions in borrowing costs, especially with another 50-basis-point cut anticipated in December 2024.

October 2024: Mortgage market update

The summer season was relatively quiet for the Canadian housing market, as buyers were reluctant to step off the sidelines until rates dropped. With the Bank of Canada having carried out a third consecutive policy rate cut on September 4, 2024 (following two rate cuts on June 4 and July 24), and more rate cuts anticipated, there could well be a rebound in home sales in the near future. 

In the wake of September’s rate cut, variable mortgage rates declined almost immediately. With another rate cut widely expected in October, there is additional downward pressure on rates. 

Bond yields have tumbled  in response to the Bank’s September rate cut and a number of other economic indicators from Canada and abroad, causing some lenders to reduce their fixed mortgage rates. 

That said, when looked at historically, fixed and variable mortgage rates remain elevated at the moment. If you’re looking for a mortgage rate in Canada right now, these are some important economic factors to know.

• Real estate update: The Canadian housing market saw a notable boost in September, with 37,733 homes sold, marking a 6.9% increase year-over-year, and a 1.9% rise from August, according to the latest data from the Canadian Real Estate Association (CREA). The surge in activity follows the Bank of Canada's three quarter-point rate cuts, which lowered the national borrowing rate to 4.25%, enticing more buyers back into the market. The national average home price climbed 2.1% annually to $669,630, with a 1.4% increase from August. Meanwhile, the MLS Home Price Index, which tracks the most typical home prices, rose 0.1% month-over-month. This price increase is attributed to stronger buyer activity in key markets as well as a surge in new listings, which were up by 4.9% from August, providing more options for buyers. CREA Senior Economist Shaun Cathcart observed that buyers may be holding off in anticipation of further rate cuts: “With the pace of rate cuts now expected to be much faster than previously thought, it’s possible some buyers may choose to hold off on a purchase for now. This could further boost the rebound expected in 2025 at the expense of the last few months of this year.”
  

  Read more: National home sales rise in September following summer rate cuts

• CPI update: On October 15, 2024, Statistics Canada released the September Consumer Price Index (CPI) report, revealing inflation has dropped to 1.6%, down from 2% in August. This decline, driven by a significant -10.7% reduction in gasoline prices, is well below the forecasted 1.8% and marks the smallest increase since early 2021. Mortgage interest costs, a major contributor to inflation, continued their 13-month decline, with growth slowing to 16.7% in September from 18.8% in August. This trend reflects the impact of previous rate cuts, and with more cuts potentially on the horizon, borrowing costs for homeowners are expected to drop further. With inflation now comfortably below the Bank of Canada's 2% target, the spotlight is now on the Bank of Canada’s October 23 announcement, when a larger rate cut – possibly as much as 50 basis points – is being speculated. Such a move would lower the overnight lending rate to 3.75%, providing further relief to mortgage holders and borrowers.

  Also read: Canadian CPI falls to 1.6% in September, increasing chance of half-point rate cut

Canadian mortgage reform update

On September 16, 2024, the federal government announced sweeping changes to mortgage qualification rules for first-time home buyers, as well as those purchasing newly-constructed homes.

As of December 15, 2024:

• 30-year amortizations will be available for all first-time home buyers, regardless of whether they have an insured mortgage. These extended amortizations are also available for any purchase of new construction.
  
  
• The maximum purchase price for an insured mortgage (where less than 20% down is paid) will be increased to $1.5 million, from the current $1 million.
  

These are some of the most impactful mortgage reforms announced since 2012, and are anticipated to increase first-time home buyers’ affordability and access to the housing market. 

Learn more about these new mortgage rule changes on the Ratehub.ca blog

October 2024 Canada mortgage affordability update

Home affordability in Canada has improved as mortgage rates continued to decline. According to Ratehub.ca's latest report, based on August data, 12 of 13 major Canadian housing markets saw better affordability, driven by the Bank of Canada's rate cuts earlier in the summer. The average five-year fixed mortgage rate dropped to 5.16% in August, down from 5.29% in July, easing the financial pressure for many prospective home buyers.

Toronto led the nation in affordability gains for the second month in a row, with the required income to purchase a home decreasing by $4,850. Home prices in the city fell by $15,100, reflecting sluggish sales activity. Similarly, Victoria and Vancouver also saw better affordability conditions, with home prices falling by $5,900 and $1,800, respectively.

However, not all markets followed this trend. St. John’s was the only major city to see a slight worsening of affordability, as rising home prices led to a marginal increase in the income required to buy a home.

Housing affordability may improve further as the Bank of Canada is expected to implement additional rate cuts throughout 2024 and into the new year. These changes, along with newly introduced mortgage rules – such as the increase in insured mortgage purchase price caps and extended amortization periods – can potentially draw more buyers back into the market.

Read more: Dropping mortgage rates improved home affordability in August

5-year fixed mortgage rates: Quick facts

• Mortgage rate is fixed over a 5-year term
• 5-year mortgage rates are driven by 5-year government bond yields
  

What makes a 5-year fixed-rate mortgage right for me?

Generally, a fixed-rate mortgage is a good choice if you are risk-averse and don’t want to deal with the stress that could come with a variable rate if the prime rate goes up over time and your mortgage payment increases. Before committing to a 5-year mortgage, you need to think about your personal situation today and going forward. If you are likely to move, change jobs, or otherwise embark on any life changes that may affect your ability or desire to remain in the home you are purchasing, you need to take this into account when selecting the mortgage that’s right for you.

Full feature mortgages vs. restricted mortgages

While it’s always desirable to obtain the best mortgage rate, in today’s historically high rate environment, the quest to find the lowest rate seems more important than ever. It also means that one needs to be vigilant about choosing the right mortgage for your needs. The lowest rate that you see advertised may not be what you want, because it could well be for a restricted mortgage. Although the low rates of a restricted mortgage may catch your eye, it’s important to understand the drawbacks. A full feature mortgage will have a higher interest rate, but it will also have a number of features that make it very desirable, including:

• Pre-payment options: Take a look at what pre-payment options your lender is willing to offer you. The more flexible your lender is with pre-payment options, the faster you can potentially pay off your loan, which could save you thousands of dollars in interest fees. The main pre-payment options are monthly pre-payment and lump sum pre-payment. In the case of the former, you’re allowed to increase your monthly payment up to a certain percentage determined by your lender, maxing out at 100%. If you had a lender who was flexible enough to allow you to double your monthly payments, for example, you could in theory pay your mortgage off in half the time if you were able to do so. The latter option, lump sum pre-payment, allows you to pay off up to say, 25% of your mortgage loan, again, depending on your lender.
• Porting your mortgage: If you need to sell your home before the end of your mortgage term, many lenders will allow you to port your mortgage. Porting a mortgage means to take your current mortgage with its existing rates and terms and transfer it to another property, and allows you to avoid breaking your mortgage. You’ll want to talk to your lender about how portable your mortgage is, particularly if you think you may need to move before your term is up. Not all mortgages are portable, and many that are portable have conditions attached that you should be aware of.
• Lump sum pre-payment privileges: You are allowed to make multiple lump sum pre-payments to bring down your mortgage balance in a given calendar year. Most lenders will cap the amount of pre-payments you can make, e.g. you cannot pay more than 20% of your principal in a single year.
• Payment flexibility: If you choose to increase the size of your regular mortgage payments, you are able to do so without incurring any penalties or fees.

These are just some of the most common features you’ll find in a full feature mortgage that make them so convenient for homebuyers. To learn more about the mortgage that’s right for you, it’s always a good idea to speak with a mortgage broker. They can give you personalized, expert advice at no cost to you.

What are some of the pros and cons of a 5-year fixed mortgage?

There are pros and cons to choosing a 5-year fixed mortgage rate, and we’ll walk you through each below. Some of the pros of a 5-year fixed mortgage are: 

• Risk protection: For buyers who are risk-averse; a fixed rate mortgage enables you to “set it and forget it” - your rate, and therefore mortgage payment, is locked in and will not fluctuate with changes in bond yields. This allows you to budget with greater accuracy and offers you stability for the duration of your term. Moreover, in recent years, Canadians enjoyed access to some of the best fixed rates available in decades, although fixed rates started to climb again in October of 2021. Since then, high inflation, global banking instability, an incredibly tight job market and other factors have all pushed bond yields up, and with them, fixed mortgage rates. Today’s fixed rates are now higher than they have been since back in 2009.
• Competitive rates: The 5-year term is historically the most popular option, and the one that lenders often encourage you to opt for. The length of this term is a good “middle of the road” choice for home buyers. Because it’s such a competitive, popular rate term, lenders often get the most aggressive when pricing these terms.

On the flip side, there are some cons to consider as well. 

• Higher rates: In order to guarantee your fixed rate, your lender will charge you a premium. According to York University Professor Moshe Milevsky’s landmark 2001 study, historically, over 90% of Canadians who have maintained a variable mortgage rate throughout their entire mortgage term have paid less in interest than those who have stuck to a fixed rate.
• Breakage penalties: While the 5-year term can offer you peace of mind, in the event that something such as a move, loss of a job, illness or divorce forces you to break your mortgage, you could be on the hook for a hefty break penalty. With a fixed mortgage rate, your penalty will be the greater of the interest rate differential (IRD) or three months’ interest. Oftentimes, the IRD penalty can be large, and thus a fixed rate mortgage can be expensive to break. If you have a variable rate mortgage, on the other hand, the penalty will always be three months’ interest, and it can therefore be less costly to break your mortgage. For a more detailed explanation of IRD and how it is calculated, you can refer to our Mortgage Refinance Calculator page. You can also use our Mortgage Penalty Calculator to estimate how much you might have to pay in the event that you have to break your mortgage. 
  

Historical 5-year fixed mortgage rates

Looking over historical mortgage rates is the best way to understand which mortgage terms attract lower rates. They also make it easier to understand whether rates are currently higher or lower than they have been in the past.

Here are the lowest (high-ratio, insured) 5-year fixed rates of the year in Canada for the last several years, compared to several other types of mortgage rates.

Source: Ratehub Historical Rate Chart

The popularity of 5-year fixed mortgage rates

A 5-year mortgage term is the most popular duration. It sits right in the middle of available mortgage term lengths, between one and 10 years, and, thus, its popularity reflects a risk-neutral average. It also tends to be heavily promoted by major lenders. A further breakdown of mortgage terms shows that about 80% of mortgages have terms of five years or less.

Fixed rates are by far the most common - in 2023, from January to December, almost 95% of mortgage rate inquiries made to Ratehub.ca were for fixed rates. Moreover, according to the 2024 CMHC Mortgage Consumer Survey, 69% of all mortgages contracted in 2024 were for fixed-rate mortgages. The table below, sourced from the same survey, shows the popularity of fixed-rate mortgages in 2024 among the four main categories of people who contracted mortgages. 

What drives changes in 5-year fixed mortgage rates?

By and large, 5-year fixed mortgage rates follow the pattern of 5-year Canada Bond Yields, plus a spread. Bond yields are driven by economic factors such as unemployment, export and inflation.

When Canada Bond Yields rise, sourcing capital to fund mortgages becomes more costly for mortgage lenders and their profit is reduced unless they raise mortgage rates. The reverse is true when market conditions are good.

In terms of the spread between the mortgage rates and the bond yields, mortgage lenders set this based on their desired market share, competition, marketing strategy and general credit market conditions.

References and Notes

1. Trends in the Canadian Mortgage Market: Before and During COVID-19, Statistics Canada, 2021
2. Annual State of the Residential Housing Market in Canada, Mortgage Professionals Canada, 2021
3. Housing Market Report: 2022 Year-End Consumer Survey and Outlook, Mortgage Professionals Canada, 2023

For more information, check out these helpful pages 

• Best Mortgage Rates in Canada
• 5-Year Variable Mortgage Rates
• Variable or Fixed Mortgage Rates
• Amortization
• Mortgage Term vs. Amortization
• Is a 5-Year Fixed-Rate Mortgage Term Right For You?
• Porting and Assuming Your Mortgage