Rates · fixed
1-Year Fixed Mortgage Rate
A 1-year fixed mortgage rate locks your interest rate for twelve months, a short-term fixed option for borrowers who expect rates to fall..
A 1-year fixed mortgage rate is the interest rate on a mortgage that is locked for a single year. No lender simply picks this number: it is built from the lender's funding costs, which move with Government of Canada short-term bond yields and the Bank of Canada's policy interest rate, plus a spread for credit risk, administration and profit. The result is published as a posted rate and then usually reduced to a discounted rate for borrowers who qualify.
How a 1-year fixed mortgage rate is determined
The pricing chain starts with the Bank of Canada policy rate, which anchors the overnight cost of short-term money in Canada. Expectations for where that rate is heading over the next twelve months feed into Government of Canada treasury bill and short-term bond yields. A lender funds itself at a spread over those yields, adds an operating margin, and publishes a posted rate. Most borrowers do not pay the posted rate; lenders routinely apply a discount that varies with the term, the borrower's credit profile, the loan-to-value ratio, and whether the mortgage is insured.
Two features separate a 1-year fixed rate from longer fixed terms. First, it reprices quickly, so it is more sensitive to near-term policy expectations than a five-year fixed rate. Second, it carries a smaller term premium, meaning the extra yield lenders normally demand for committing money for a longer period. For the full mechanism, see how mortgage rates work in Canada. The Bank of Canada also publishes a conventional mortgage rate series based on posted rates from chartered banks; treat that series as a reference point rather than a quote for your own file, and check the current figure at the source.
Who a 1-year fixed term typically suits
A 1-year fixed term is often chosen by borrowers who expect rates to be lower when the term ends, and who would rather hold a known payment in the meantime than accept a variable rate. It also appeals to borrowers with a short planned holding period, such as someone who expects to sell, relocate, or refinance within a couple of years, because a short horizon limits how much rate risk they take on.
It is less suited to borrowers who need long-term payment certainty, or who would find it difficult to absorb a higher payment if rates rise at renewal. Because the term is short, the rate is guaranteed for only a small window; the remainder of the amortization period will be repriced at whatever terms are available later.
How the 1-year fixed term compares with adjacent terms
The table below compares this term with the alternatives borrowers most often weigh it against. Rate levels are not shown because they change constantly; confirm current figures with individual lenders or the Bank of Canada.
| Term | Main rate driver | Renewal frequency | Breakage exposure | Often suits |
|---|---|---|---|---|
| 1-year fixed | Short-term Government of Canada yields and near-term policy expectations | Every year | Generally lower, because there is little remaining term | Borrowers who expect rates to fall, or who may sell or refinance soon |
| 2- to 3-year fixed | Short- to medium-term bond yields | Every two to three years | Moderate | Borrowers wanting a balance of stability and flexibility |
| 5-year fixed | Medium-term bond yields; the most commonly quoted benchmark | Every five years | Higher in a falling-rate environment | Borrowers prioritising payment certainty |
| Variable rate | Lender prime rate, which moves with the policy rate | No fixed date; payment or amortization adjusts | Typically three months' interest | Borrowers comfortable with payment fluctuation |
The trade-off is straightforward: a shorter fixed term gives up long-term certainty in exchange for the ability to reprice sooner, and it usually carries less breakage exposure. Use the mortgage payment calculator to see how a different rate on the same balance changes the payment.
Renewal and breaking the term early
At maturity, a 1-year fixed mortgage does not roll over automatically on the original terms. The lender typically sends a renewal statement before the term ends, and the borrower can renew with the same lender, negotiate new terms, or arrange a switch to another lender. Renewing or switching at maturity normally happens without a prepayment penalty, although discharge and registration costs can apply when moving to a different lender.
Breaking the term before maturity is different. A closed fixed-rate mortgage usually carries a prepayment penalty equal to the greater of three months' interest or the interest rate differential, which compares your rate with the lender's current rate for a comparable term over the time remaining. Because the remaining term on a 1-year fixed mortgage is short by definition, that calculation has less time to accumulate, which is one reason these terms are often described as more flexible than a five-year fixed. See the guide to breaking a mortgage early and the mortgage renewal guide for the process, and confirm your own contract terms with the lender.
What to check before choosing a 1-year fixed rate
Before committing to this term, work through the contract details:
- Whether the mortgage is closed or open, and what that means for early repayment.
- Prepayment privileges, including how much of the principal can be paid down each year without penalty.
- Convertibility, or whether the mortgage can be moved into a longer fixed term later.
- How long a rate hold or rate lock lasts while you shop or wait for a closing date.
- Discharge, appraisal and registration costs if you expect to switch lenders.
The federal mortgage stress test also applies at federally regulated lenders: borrowers generally must qualify at a rate above the contract rate, using a buffer and a minimum floor set by the regulator. Confirm the current buffer and floor with OSFI or the FCAC before assuming a particular qualifying rate applies to your file.
Finally, ask the lender to quote the annual percentage rate rather than only the nominal rate, since fees and the compounding method affect the true cost of borrowing. Canadian fixed-rate mortgages typically compound semi-annually, which influences the effective rate. When two offers look close, compare them on the same basis using the guidance in how to compare mortgage rates.
Frequently asked questions
What is a 1-year fixed mortgage rate?
It is the interest rate on a mortgage whose rate is locked for twelve months. The lender sets it from its funding costs, which track short-term Government of Canada bond yields and expectations for the Bank of Canada policy rate, plus a margin. Borrowers typically pay a discounted rate below the lender's posted rate, depending on credit profile, loan-to-value ratio and whether the mortgage is insured.
Why is a 1-year fixed rate different from a 5-year fixed rate?
Term length changes both the risk and the pricing. A 1-year term reprices within a year, so it responds mainly to near-term policy expectations and carries a smaller term premium. A 5-year term reflects medium-term bond yields and gives longer payment certainty, but breaking it early usually costs more because there is more remaining term.
What happens when my 1-year fixed mortgage term ends?
The lender normally sends a renewal statement before maturity. At that point the borrower can renew with the same lender, negotiate new terms, or switch to another lender, usually without a prepayment penalty. Because the term is short, the renewal rate is effectively a fresh pricing decision, so comparing offers at maturity is common practice.
Is it expensive to break a 1-year fixed mortgage early?
A closed fixed-rate mortgage usually carries a penalty equal to the greater of three months' interest or the interest rate differential. On a 1-year term there is little time left for that differential to build, so the penalty is often smaller than on a longer fixed term, but the exact calculation depends on the contract and the lender's current rates.