Find the best 5-year fixed mortgage rate in Toronto

As Canada's most populated city and the country's financial and business capital, Toronto has the largest real estate and mortgage market in the country. This is a mixed blessing for homeowners, as high growth in home prices can work both for and against you, depending on your circumstances.

However, it does mean that there is an enormous range of mortgage products and providers available to Torontonians, covering almost any type of property purchase.

But too many options can sometimes make it hard to choose. 5-year fixed-rate mortgages are the most common type of mortgage in Toronto, so it’s a good place to start comparing your options. Read on to learn more about 5-year fixed rates in Toronto, then use the tools at the top of this page to start comparing mortgage products for free.

5-year fixed mortgage rates: Quick facts

• Mortgage rate is fixed over a 5-year term
• 72% of Canadians had fixed mortgage rates in 2020 (Source: Mortgage Professionals Canada)
• 49% of all Ontario mortgage requests made to Ratehub.ca in 2021 were for 5-year fixed mortgages
• 5-year mortgage rates are driven by 5-year government bond yields

Historical 5-year fixed mortgage rates in Toronto

Looking over historical mortgage rates is the best way to understand which mortgage terms tend to attract lower rates. Doing so also helps you appreciate whether rates are currently higher or lower than they have been in the past.

If interest rates are currently low, a fixed mortgage rate could be a good idea, as it locks in today's rate for several years. However, if interest rates are currently high but likely to drop in the coming years, then a variable mortgage rate would let you benefit from that.

Here are the lowest 5-year fixed rates 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 in Toronto

Fixed mortgage rates are the most popular rate type in Toronto. Fixed rates offer the benefit of consistent payments for your entire term.

Across Canada, 5-year mortgage terms are the most common term length by far. 5-year terms sit in the middle of the mortgage term lengths available in Canada, which range between 6 months and 10 years. As such, 5-year terms are a nice compromise between consistency and flexibility.

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.

5-Year Fixed Rates vs. 5-Year Bond Yields

From 2000 - Today

Should you get a 5-year mortgage in Toronto?

As with most things in the mortgage business, it depends. While 5-year rates are popular and generally come with some of the lowest mortgage rates available, there are many reasons why you might not want to get a 5-year mortgage.

For example, if you think rates will go up in the coming years, it might be a good idea to lock-in today's rates for longer with a 10-year mortgage. Alternatively, you might need the flexibility that comes with a shorter mortgage term, such as a 3-year or 2-year mortgage.

If you're finding this all a bit confusing, don't worry - you're not alone! Speaking to a mortgage broker, or using Ratehub.ca to compare quotes from multiple lenders, can help you better understand your options. That's the first step in making the right choice.

 

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

 

For more information, check out these helpful pages! 

• Best Mortgage Rates in Canada
• 5-Year Fixed Mortgage Rates
• 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

What are 5-year fixed mortgage rates?

The '5' in a 5-year mortgage rate represents the term of the mortgage, not to be confused with the amortization period. The term is the length of time you lock in the current mortgage rate, while the amortization period is the amount of time it will take you to pay off your mortgage. The term acts like a reset button on your mortgage, at which point you must renew the mortgage at a rate available at the end of the term. So, for example, a typical mortgage has a 5-year term and a 25-year amortization period.

When the mortgage rate is 'fixed' it means that the rate (%) is set for the duration of the term, whereas with a variable mortgage rate, the rate fluctuates with the market interest rate, known as the 'prime rate'. So, for example, if the 5-year fixed mortgage rate is 4%, then you will pay 4% interest throughout the term of the mortgage.

An interesting feature of the 5-year fixed mortgage rate is that all borrowers must meet its standards of approval even if they choose a mortgage with a lower interest rate and shorter term. This benchmark is applied not only to reduce risk for the lender, but to give the borrower some breathing room.

How much can I save comparing 5-year fixed rates?

Your mortgage is likely to be the largest financial commitment you’ll ever make, and getting a better rate can save you thousands over a 5-year term. Even a slightly lower mortgage rate can result in big savings, especially early on in your mortgage.

For example, on a $500,000 mortgage with a 25-year amortization period, a rate of 3.00% would see you pay $69,347 interest over 5 years. With a 2.75% rate you’d pay $63,454 interest over the term. So, a difference of just 0.25% can save you $‭5,893‬ over your 5-year term.

Why compare 5-year fixed rates with Ratehub.ca?

We make it simple to see current mortgage rates from all of Canada’s leading mortgage providers in one place. We have rates from the big banks, credit unions and smaller lenders across the country.  This makes it easy to see who offers the best rates in Canada in real time, at no cost to you.

Why are fixed rates different to variable rates?

You can think of the difference, or spread, between variable mortgage rates and fixed rates as the price of insurance that mortgage costs will not increase in the next five years, more or less. The advantage of fixed-rate mortgages is that you know exactly how much your mortgage payments will be regardless of whether rates rise or fall. You can, essentially, set it and forget it. This eases the budgeting anxiety that may follow a variable rate mortgage.

When interest rates are low, and the spread between shorter-term rates and the 5-year fixed mortgage rates is less significant, it is typically recommended that you lock in the 5-year rate. The longer term offers stability and, because rates are historically low, the chances of rates decreasing further with a variable rate are greatly reduced.

On the other hand, as is the case with all fixed mortgage rates, there is the potential to pay higher interest when variable rates are low, and, examined historically, variable rates have proven to be less expensive over time.

Are 5-year mortgages better than other mortgage terms?

5-year mortgage terms aren’t necessarily better than other terms. You should pick a term length based on your financial needs and current situation, as well as what rates are on offer. However, 5-year terms offer a good compromise - they’re long enough to provide some stability, but short enough to not lock you in for a long time.