Kurt Woock
Beth BuczynskiNerdy Tip: Three-year fixed mortgage rates are holding steady as we head toward August. As of July 25, 2024, some lenders were offering discounted three-year fixed rates for around 4.9%
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Today’s posted fixed mortgage rates at Canada’s Big 6 banks
Rates updated: July 26, 2024
Bank |
1-Yr Fixed Rate |
3-Yr Fixed Rate |
5-Yr Fixed Rate |
|---|---|---|---|
| 7.74% | 6.95% | 6.79% | |
| 7.44% | 6.99% | 6.84% | |
| 7.74% | 6.94% | 6.79% | |
| 7.84% | 6.95% | 6.79% | |
| 7.84% | 6.94% | 6.79% | |
| 7.74% | 6.94% | 6.79% |
Posted rates for closed mortgages with amortization under 25 years. Data source: Canada's major banks
Mortgage rate environment analysis: July 2024
Borrowers should still be able to find both three- and five-year fixed mortgage rates for well below 5%. The spread between the two has decreased — three-year terms were much more expensive in 2023 — so the cost of choosing a three-year term as a means of accessing lower rates sooner is no longer as prohibitive.
As of July 25, 2024, three- and five-year government bond yields had been trending steadily downward for about a week. At the very least, that means no upward pressure on fixed mortgage rates. If yields keep sinking, lenders could be in a position to lower their fixed rates. Don’t expect huge discounts, though.
Average fixed mortgage rates from Canada’s chartered banks
The following rates apply to conventional mortgages, or those based on down payments of 20% or more. These rates do not include the discounted rates you may see elsewhere on this page.
| TERM | CONVENTIONAL MORTGAGE RATES |
|---|---|
| 1-year fixed | 7.74% |
| 3-year fixed | 6.94% |
| 5-year fixed | 6.79% |
| Prime rate | 6.95% |
Fixed mortgage rate history
Based on average weekly conventional mortgage interest rates posted by the major chartered banks. Data source: Bank of Canada
Calculators to inform your next mortgage decision
Factors that affect Canadian 3-year fixed mortgage rates
Two factors determine the three-year fixed mortgage rates you’re offered: the government bond market and your finances.
The bond market
Financial institutions invest in government bonds — which are generally stable investments — to create a reliable profit flow. When interest rates rise, however, bond values decrease, and banks lose money. To offset this, banks will raise interest rates on fixed-rate mortgages.
Here’s a simple way of thinking about it: when the yield on three-year government bonds go up or down, three-year fixed mortgage rates eventually follow suit. The same goes for two- and five-year bonds and fixed mortgage rates that correlate with those terms.
Your financial situation
The bond market influences fixed mortgage products, but the actual rate you’re offered depends on your financial situation, including:
- Your credit score. The better your credit score, the less risk you pose as a borrower. Lenders are typically more willing to offer lower rates to borrowers who they believe will pay them back in full.
- Your down payment amount. Making a larger down payment means applying for a smaller mortgage, which creates less risk for your lender, and can help reduce or eliminate mortgage insurance payments. It may also signal an ability to prioritize your spending, which is important when trying to secure a mortgage.
- Other debts you may have. If you’re carrying a heavy debt load, lenders may question your ability to pay them back. That may result in them offering you a higher interest rate.
Pros and cons of 3-year fixed-rate mortgages
Pros
- No surprises with your monthly cost. You’ll know what your mortgage payments will be for a full three years, which can make budgeting and long-term financial planning easier.
- Term length could be a good fit. A “good” term length really depends on each person’s particular situation. That said, a three-year term could be a good fit if you think you might move or sell if you took out a mortgage with a longer term, which could cost you more in prepayment penalties.
- Easy to understand. Fixed-rate mortgages are as set-it-and-forget-it as mortgage products come. You shouldn’t have to think about your mortgage until it’s time to renew.
Cons
- Life happens. It’s hard enough to know what will happen tomorrow, let alone three years from now. Staying in the same home for that long may not be feasible. If you have to move, for example, you might have to break your mortgage.
- You’ll face penalties if you sell before your term is up. Breaking a fixed-rate mortgage can result in you paying pre-payment penalties. They can be especially disruptive if you aren’t selling your house and don’t have an infusion of cash to fall back on.
- No benefits if rates fall. If fixed mortgage rates decline during your term, you won’t be able to take advantage unless you break your mortgage.
How to choose the best type of mortgage
When choosing a mortgage, the interest rate is just one factor. There are other aspects you need to consider before deciding on the final make-up of your mortgage. Some are general and apply to all home loans, others are more specific to fixed-rate mortgages.
Amortization length
Amortization refers to the total amount of time it will take you to pay off your mortgage in full.
Some borrowers opt for shorter amortization periods (the standard is 25 years) because it means paying less interest overall. But that does mean higher monthly payments. Longer periods mean smaller payments, but you’ll pay more in total interest over time.
Fees
Fees can add thousands to the amount of cash you need upfront, which may lower the amount available for your down payment. Work with your lender or mortgage broker early in the mortgage application process to set realistic expectations.
Open vs. closed mortgages
Prepayment penalties are the fees lenders may charge if you pay off all or part of your mortgage before the end of its term. They’re an important consideration if you have to sell your home before the term expires or if you plan to pay your mortgage down ahead of schedule. You can avoid these fees with an open mortgage, but you’ll likely pay a higher rate. Closed mortgages, which are more common, often allow some prepayments before penalties kick in.
Portability
Porting a mortgage occurs when a lender allows a homeowner to transfer their existing mortgage to a new house — a process that avoids a high prepayment penalty. If you think you might move during your mortgage’s term, ask lenders about their porting policy.You can only port a mortgage with the lender you originally signed your mortgage contract with.
Alternatives to three-year fixed-rate mortgages
Choose a variable rate
A variable-rate home loan might offer a lower interest rate and generally has fewer penalties if you break your mortgage or refinance during your mortgage term.
Most lenders will allow you to switch to a fixed rate for the remainder of your term.
Choose a different term length
Both shorter and longer term fixed-rate options are available. In fact, the most common mortgage type in Canada has historically been a five-year term.
What’s a good 3-year fixed mortgage rate?
The short answer: A good 3-year fixed mortgage rate is the lowest rate you can qualify for based on the amount you need to borrow and the specific loan features that best fit your finances.
The longer answer to this question requires some historical context. According to the Bank of Canada, the average 3-year mortgage rate posted by Canada’s major chartered banks was:
- 6.89% on August 16, 2023.
- 5.64% on August 17, 2022.
- 3.75% on August 21, 2013.
- 5.65% on August 20, 2003.
- 8.25% on August 11, 1993.
- 13% on August 17, 1983.
Compared to the past decade, mortgage rates seem high. Compared to rates Canadians have paid in the past few decades, rates look average.
Forecasting 3-year fixed mortgage rates
Canada’s three-year fixed mortgage rates can be hard to predict with any accuracy, especially over the long-term. Even short-term fixed-rate predictions can be tricky.
If you notice a sustained upward or downward trend in the three-year government bond yield, history tells us that three-year fixed mortgage rates tend to move in the same direction. But when they’ll move, how much they’ll fluctuate, and how long they’ll stay at their new level is hard to pinpoint.
How to qualify for the lowest 3-year fixed mortgage rate
Though lenders may have different mortgage qualification criteria, there are some time-tested ways to qualify for the lowest mortgage rate.
Improve your credit score
The best mortgage rates generally go to borrowers with a credit score of 680 and higher. You’re still likely to be considered for a mortgage with a score of 600 and above, you just may not necessarily be offered the best rates.
Maintain low debt service ratios
Lenders look at two debt service ratios when reviewing mortgage applications: Gross Debt Service (GDS) and Total Debt Service (TDS) ratios.
GDS ratio: the percentage of your pre-tax household income that goes toward housing costs (mortgage payments, utilities and property taxes). Your GDS ratio should not exceed 39% of your yearly gross income.
TDS ratio: your GDS plus any other debts, including student loans and credit card debt. Your TDS ratio should not be more than 44% of your pre-tax household income.
Increase your down payment
- A larger down payment can work wonders for your mortgage. Proving you can save money may suggest to lenders that you are a low-risk borrower worthy of a lower interest rate.
- You’ll borrow less, which decreases your overall mortgage costs.
- A down payment of 20% or more will free you from buying mortgage default insurance.
How to shop for the best 3-year fixed mortgage rates
Getting the lowest rate possible can significantly lower the overall cost of your mortgage. Shaving 0.3% off of a three-year fixed mortgage rate can save tens of thousands of dollars.
Here’s an example:
- Home price: $400,000.
- Down payment: $80,000.
- Mortgage amount: $320,000.
- Amortization: 25 years.
A 5.5% rate would result in $265,975 in total interest over the course of the mortgage.
A 5.2% rate would result in $249,320 in interest — a difference of $16,655.
Use APR for accurate 3-year fixed mortgage rate comparisons
The best way to get the best rates is to get offers from multiple lenders, or to work with a mortgage broker who can do this work for you.
When comparing mortgage rates, compare annual percentage rates (APRs) — not just the advertised interest rates. The APR combines the interest rate, fees and other closing costs set by the lender into a number that represents the complete cost of the mortgage.
Frequently asked questions about three-year fixed mortgage rates
As of July 25, 2024, some lenders were offering three-year fixed-rate mortgages for around 4.9%. The rate you’re offered will be based on your credit score, down payment amount and home purchase price.
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