Best 5-year fixed mortgage rates - Canada mortgage rates - Ratehub.ca (2024)

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July 2024: Mortgage market update

The spring season was relatively slow 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 the first policy rate cut in over four years on June 5, 2024, and more rate cuts anticipated, there could well be a rebound in home sales in the near future.

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

Bond yields have tumbled to the 3.3% range in response to the Bank’s June 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 are both 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 July 12, 2024, the Canadian Real Estate Association (CREA) published the most recent figures for the Canadian housing market for the month of June 2024. The latest data indicates that Canada’s housing market experienced a modest month-over-month increase in sales between May and June, likely as a result of the Bank of Canada’s June rate cut. As a result, the 45,654 home sales across Canada in June represented a 3.7% monthly improvement, but were still down by -9.4% from the same time last year. On the other hand, sellers continue to enter the market in droves, and as a result, new listings are up by 26% year over year. The influx of new listings has ensured that price growth has remained fairly flat. In fact, the national average home price actually dipped by -1.6% on an annual basis, coming in at $696,179. One benefit of the current situation is that buyers are enjoying balanced market conditions, with June’s national sales-to-new-listings ratio (SNLR) standing at 53.9%. CREA considers a range from 45 - 65% to be balanced, with above and below that threshold representing buyers’ and sellers’ markets, respectively.

  Read

  more: Rate cut leads to small June jump for national home sales
• CPI update: On June 25, 2024, Statistics Canada released the latest May Consumer Price Index (CPI) report. The most recent data reveals that the headline inflation number rose on a monthly basis by 0.2%, coming in at 2.9%. This figure is higher than expected, and, according to Statistics Canada’s report, was driven in large part by an increase in service costs, such as cellular services, travel tours and air transportation (among others), which rose from 4.2% in April to 4.6% in May. The same report also noted that food costs had risen for the first time since June 2023, moving up by 1.5%. Shelter costs, which have been the biggest contributor to inflation over the past two years, stayed flat, with a decrease in mortgage interest costs (caused by lower mortgage rates in May) being balanced by a spike in rent costs, particularly in Ontario (rental costs in the province jumped from a 6.1% rise in April to 8.4% in May). The two main core inflation metrics, which are followed intently by the Bank of Canada, also rose, with CPI median up from 2.6% in April to 2.8% in May, and CPI trim rising from 2.8% in April to 2.9% in May. This latest CPI reading has cast serious doubt on whether the central bank will proceed with another rate cut in July, as had previously been widely expected. June’s CPI is expected to be published before the Bank of Canada’s next announcement on July 24, which will give us a more concrete idea of how the Bank might choose to proceed.

Read more: Canadian CPI comes in at 2.7% in April

2024 Housing market forecast

CREA has released an updated housing market forecast for the latter half of 2024 and 2025, taking into account the likelihood of fewer rate cuts from the Bank of Canada than expected, a larger than expected increase in housing supply and continued reticence on the part of buyers.

CREA’s revised forecast sees a total of 472,395 homes being sold in 2024, up by 6.1% from the previous year. This is, however, down from their previous forecast of 492,083 transactions (which would have marked a 10.5% increase).

For 2025, CREA sees sales rising by a further 6.2% to 501,902 transactions, fuelled by declining interest rates and growing demand. This projection has also been revised downwards, as it previously saw a 7.8% increase, meaning 530,494 home sales.

Finally, the national average home price is expected to rise by 2.5% in 2024 to $694,393, followed by a 5% rise in 2025, taking it to $729,319. CREA had earlier forecast that 2024 would see 4.9% home price growth (resulting in an average home price of $710,120) and by 7% in 2025 (resulting in an average home price of $760,120).

5-year fixed mortgage rates are the most popular type and term combination in Canada, so it’s usually the first place people start when researching mortgage rates. Ratehub.ca makes it easy to find the lowest 5-year fixed mortgage rates, as we bring rates from the big banks, lenders and credit unions all to one place at no cost to you.

June 5, 2024 Bank of Canada announcement update

On June 5, 2024, the Bank of Canada reduced its target for the overnight rate by -0.25%, taking it from 5.00% to 4.75%. This is the first time the Bank of Canada has carried out a rate cut since March 2020.

• The Bank of Canada pointed to steadily falling inflation as the justification for the rate cut. April’s inflation reading came in below expectations at 2.7% (the third month in a row where the inflation rate has been under 3%), while “core” trim and median measures down to 2.6% and 3.2%, respectively.
• Fixed mortgage rates are tied to the bond market rather than to the Bank of Canada’s rate decisions, but anticipation of a possible rate cut had caused bond yields to fall about 30 basis points over the days preceding the announcement. With a rate cut now on the books, lenders will almost certainly begin reducing their fixed-rate offerings.
• Canadians with variable-rate mortgages and home equity lines of credit (HELOC) will no doubt be thrilled that their rates are finally going to come down from a nearly 20-year high.
• Although this is only a 0.25% rate cut, it remains to be seen how much of an effect this has on the housing market. Buyers may be more willing to enter a lower rate environment, which in turn could spur other buyers to start shopping in order not to miss out on their ideal window.

• 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

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