Mortgage Term Reviews

Best-Mortgage-RatesPicking a mortgage is like buying a diamond. It’s an expensive purchase; you don’t want to screw it up; and getting started can be confusing. The first thing most people choose is their term.  Here’s a Twitter-length review of several terms to get you thinking in the right direction.

Popular Fixed Terms…

  • 1-year fixed:  With rates under 3%, they’re a good alternative to 5-year variables—which should hopefully be at prime by the time these puppies mature next May.
  • 2-year fixed:  If convertible, then they’re another decent alternative to 5-year variables. You get an extra year of rate security for ~0.20% more than the best one years.
  • 3-year fixed:  A nice combination of risk and reward. Versus a 5-year, you’ll save significant interest the first three years. The tradeoff is more risk in years 4 and 5.
  • 4-year fixed:  The ugly baby that no one wants. There’s no value here. Go 3 or 5 instead, unless you plan to break in four years and want to avoid a penalty.
  • 5-year fixed:  Canadians love their 5-year terms. Now may be the time for the risk averse to grab one, with rates expected to jump later this year or next.

Longer Fixed Terms…

  • 7-year fixed:  A rate near 5% isn’t as exciting as 3.79% for a 5-year, so 7-years don’t sell very well. If you’re that concerned about risk, take a 10-year for the same price.
  • 10-year fixed:  The decade mortgage is available under 5% for the first time in modern history. Nonetheless, you may pay thousands more in interest versus a 5-year.

Variable Terms…

  • 5-year closed variable:  They say prime isn’t going any lower. So why gamble with prime+ variables? Get a convertible 1- or 2-year and wait for prime- to return.
  • 5-year capped variable:  You’ll get 3.25% today and never pay over 5.25%. Sounds good, but if you’re that worried, why not pay a little more for a fixed now?
  • 5-year open variable:  Closed variables are portable and have just 3-month interest penalties. So, unless you’re going to terminate early, save 0.30% and go closed.

Other Terms and Features…

  • 5-year $0 Down:  Despite posted rates falling to 5.25%, the cost of cash-backs is still atrocious. If you can’t put down 5% then renting sounds good in comparison.
  • 5-year no-frills:  If there’s any chance you’ll need over 5% pre-payment privileges you’ll be sorry for choosing one. If not, you’ll save some money (0.30% or more).
  • Open HELOC: :  The All-in-One is our favourite. It has interest offsetting and automatic everything. We just wish the LOC was at prime again like in December.
  • Readvanceables:  Love’em. Gotta have’em. Everyone with 20% equity should own one. They make you liquid, and you can’t put a price on liquidity. More…


Sidebar:  There are a million and one exceptions to everything above, so call a mortgage planner for a detailed comparison of your options. Qualifying is contingent upon approved credit. These opinions are based on the market and terms available as of today. They will differ over time. This information is not advice and may change without notice!

  1. In the middle of March, I broke my 3 year fixed 5.85% with 22 months left. My bank did early renewal without Penalty for me to 4.29% with 5 year-fixed. Then posted rate went down after I signed. He even gave me same discount to 4.05% without Penalty. Then a month later posted rate went down twice, he even gave me same discount again to 3.65% without Penalty last week. As a result my rate went down from 5.85% to 3.65% no Penalty at all. The reason I chose 5 year-fixed is to plan to pay off in 5 years. Is this rare case? I’m not working for the bank.

  2. Why my banker cannot give me the 5-year fixed rate lower than the speical offer which is now 3.95% from RBC?
    They recommended me to use fixed rate when the rate was still above 4.75%. Fortunately, I didn’t listen to them. Is there any chance that I can get lower rate from RBC for 5 year fixed closed rate than 3.95% now?

  3. Why waste time with RBC and 3.95% when there are so many alternatives? Call a broker or another bank.

  4. I heard when you switch the banks around, you need to pay for legal fee to change the bank name on the house. It will cost $500 to $700. If the difference of the interest is small and does not save the amount of the legal fee over the period, it does not make sense to change your bank.

  5. Hello Rob ,
    Your quote on the 4 year rate fixed: ” The ugly baby that no one wants. There’s no value here. Go 3 or 5 instead, unless you plan to break in four years and want to avoid a penalty. ”
    A person I know just renewed at 3.69 /4 years. His previous rate 4 years ago was 4.19. He has been very fortunate. He says he does it because that when the U.S has had elections , every four years.
    Would you have a chart to show rates to a person having 3 years , 4 years and 5 years. IN OTHER WORDS.
    If a person was to renew now on a 3 , 4 or 5 year term, what were the previous rates with the same term.

  6. Hello Dave ,
    3.95 is what they show on there site, but talk to a RBC Mortgage Specialist. They can give a better rate.

  7. I’m offered a 4 year fixed at 3.44% in one bank and a 5 year fixed at 3.65% at another. I think I’m going to go for the 5 year but the 4 year sounds pretty good too. Why is the 4 year worthless?

  8. Hi Bob: Thanks for the note. 3.44% is a one-off unpublished exception that is unavailable to the masses. The best published bank and broker rates for a 4-year term are nowhere near that good. Given this, a 3- or 5-year term is a better general value in our opinion. Just to clarify, 4-year terms are not useless. There was one reason stated whereby a 4-year might be of value and there may be other exceptions as noted. Also keep in mind that rates change daily. If someone came out with a 4.39% 4-year on Monday then our opinion could change.
    Hi Curious: No, I don’t have a chart like that; sorry. The “presidential effect” is a questionable theory at best. The global economy drives interest rates, not the President. Yes, there has been some historical correlation between rates and U.S. presidential elections, but the sample size and causation are woefully insufficient to draw any real conclusions.

  9. \Hi there,
    I am thinking to brake my mortgage with a bank and go with an offer from
    I found that company on the internet.I do not have much information about them and that makes me worried. I wonder if anyone has had experience dealing with Valuelend brokers or know about how preffesional and serious they are.
    Thanks You

  10. Hi there,
    I currently have a Prime minus .75% for my new home. Does anybody think I should lock in a portion of my mortgage or should I just ride out the Bank of Canada announcements for a year or so and then re-evaluate?

  11. I think if yo have a prime minus you would be nuts to lock any thing in. Your only paying 1.5% on your mortgage and the gov has promised to keep rates ths low for a year. Just pay down the priciple and be mortgage free.

  12. If you know for sure that you want to lock in then at least wait until bank posted rates increase next. They are at 5.25% today. I bet the next increase will be the first of many to come.

  13. Hello All, especially TK…
    I’m closing on my first house at the end of June and am considering Scotia. It seems some of you are lucky in being able to change things without penalties and I’m wondering if that is more common in the banks (like Scotia) or with brokers?
    Thank you.

  14. Sorry, one more question…
    Regarding the author’s part on “5 year closed variable”
    If you’re starting a mortgage now, how do you get something in hopes of going to variable when the rate is less than prime+.8/.1? The author suggests a convertible for a yr or two but I thought a convertible was convertible to a fixed rate mortgage only, not convertible to a variable rate mortgage. Can someone please explain?
    Thank you.

  15. Hi JPS,
    Thanks for the questions. Penalty reductions are granted in only a minority of cases and depend on what the lender will allow. You can avoid penalties by choosing a “blended rate” but you often make out better by paying the penalty and refinancing.
    Penalties have nothing to do with brokers. You are completely at the lender’s mercy when it comes to negotiating penalties.
    Regarding 1-year terms, most are convertible to fixed rates only. However, some are convertible to variables as well (a great solution in today’s market).
    Regardless, a 1-year will give you the option to lock into a fixed rate if you need to, and allow you to refinance in 12 months when variable rates should (hopefully) have smaller premiums. You also have a fixed rate in case prime starts increasing before one year (despite the BoC’s “pledge”).
    All of this makes 1-year convertibles very appealling in this type of market.

  16. Please advice:
    I have 2 options:
    1 year fixed close 2.90 &
    5 years fixed close 3.50
    What should I choose?

  17. Hi Andrea: Thanks for the note. Your best bet is to call an independent mortgage planner who can provide a recommendation based on all the factors that must be considered when advising on a term.
    Hi Birdie, Anything is possible, but that is improbable.

  18. —- is posting 3.59 at a bank, that’s the best I’ve seen. 20%/20% prepayments as well.
    [Edited. Feel free to post lender quotes that are verifiable but please refrain from posting broker quotes. Otherwise the site will be overrun with spam. Thanks…]

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