Find the best 5-year fixed mortgage rates in Canada

December 2024: Mortgage market update

This year has been 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 fifth consecutive policy rate cut on December 11, 2024, and more rate cuts anticipated, there has been a rebound in home sales. 

In the wake of December’s 50-points rate cut, variable mortgage rates declined almost immediately. Bond yields have tumbled in response to the Bank’s December rate cut, 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: On December 16, 2024, the Canadian Real Estate Association (CREA) announced a sharp rebound in the housing market, with 37,855 homes sold in November. This marks a 26% year-over-year increase and the third consecutive month of growth, following a 30% sales surge in October and a 6.9% rise in September. The renewed demand, driven by lower interest rates, has begun to tighten market conditions, pushing home prices higher. The national average home price climbed 7.4% year-over-year to $649,411, with a 0.9% month-over-month increase from October. The National Composite MLS Home Price Index (HPI) also rose 0.6% monthly, marking its largest gain since July 2023. Market competition continues to intensify as sales outpace new listings. November saw 56,242 homes newly listed, up 2.4% year-over-year but down 0.5% from October. The sales-to-new-listings ratio (SNLR) increased to 59.2%, edging closer to the seller’s market territory. Inventory levels also remain tight, with 3.7 months of inventory available — the lowest in 14 months, compared to the long-term average of 5.1 months. With the Bank of Canada’s rate cuts expected to continue into 2025 and new mortgage rules now in effect, economists anticipate a strong winter housing market and an even more active spring selling season.

  Read more: National home sales rise 26% in November

• CPI update: The latest Consumer Price Index (CPI) report from Statistics Canada reveals Canada’s inflation rate dipped to 1.9% year-over-year in November, down slightly from 2% in October. The decline was primarily driven by lower mortgage interest costs, which dropped to 13.2%, marking the 15th consecutive month of declines following the Bank of Canada’s steady interest rate cuts. Shelter inflation slowed to 4.6%, though rent prices remain persistently high at 7.7%. Canadians, however, are still feeling the strain of elevated grocery costs, which rose 2.6% — a small improvement from October but still a steep 19.6% increase compared to the same period in 2021. Seasonal Black Friday discounts also contributed to easing costs across categories like clothing, furnishings, and household operations. While inflation nearing the Bank of Canada’s 2% target offers reassurance, core inflation measures, including the CPI trim and CPI median, remained unchanged at 2.7% and 2.6%. This leaves the BoC with a cautious path forward. Analysts expect the central bank to proceed with more measured and gradual rate cuts in early 2025. 

  Read more: Canadian CPI falls to 1.9% in November

December 11, 2024 Bank of Canada announcement update

In its final announcement of the year, the Bank of Canada (BoC) lowered the Overnight Lending Rate by 0.50%, bringing it to 3.25%. This marks the fifth consecutive rate cut since June 2024, with a total reduction of 175 basis points.

• This decision was primarily driven by weak economic growth, with the Canadian economy expanding by just 1% in the third quarter, below the BoC’s expectations of 1.5%. 
• The prime rate at most lenders will drop to 5.45%, providing relief for borrowers with variable-rate mortgages and home equity lines of credit (HELOCs). Borrowers will see reduced monthly payments or interest portions on their loans.
• While fixed mortgage rates are not directly impacted by the BoC’s policy changes, bond yields — which influence fixed rates  —have decreased to 2.8% following the BoC’s announcement. This could lead to further discounts on fixed-rate mortgages in the near future.
• The rate cut will negatively affect investors in HISAs and Guaranteed Investment Certificates (GICs), as the returns on these products are expected to decline.
• The central bank will continue to assess the need for further reductions in 2025 on a case-by-case basis, guided by incoming economic data and inflation trends.

Highlights from the November 2024 Fed rate cut announcement

On November 7, 2024, the US Federal Reserve announced a quarter-point reduction in its benchmark interest rate, marking its second consecutive cut after a notable 0.50% decrease in September. This decision reflects the Fed's ongoing efforts to tackle inflation, which has dropped from a peak of 9.1% in June 2022 to 2.4% in September, 2024.

The outlook for future rate cuts, however, is less certain in light of the recent US Federal Election results. With President Elect Donald Trump poised to take office, there are concerns that his economic policies may reignite inflationary pressures. Fed Chair Jerome Powell stated that future decisions will be made on a meeting-by-meeting basis, with a focus on ensuring employment and stabilizing prices.

The effects of the Fed's recent actions extend into Canadian markets. As US bond yields have surged — particularly the 10-year Treasury note — Canadian borrowing costs are also expected to rise. Following the recent U.S. election’s outcome, the government of Canada five-year bond yield climbed above 3%, signaling that fixed mortgage rates in Canada are likely to increase, leading to higher costs for homeowners and prospective buyers.

Also read: US Federal Reserve cuts rate by 0.25% in November announcement

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

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