3-Year Fixed Mortgage Rate

A 3-year fixed mortgage rate is the interest rate charged on a closed mortgage term of three years during which the contract rate stays the same from the first payment to the last. Lenders arrive at that rate from their own funding costs, the yield on Government of Canada bonds of similar maturity, and a margin for risk and profit — not by simply copying the Bank of Canada's policy rate.

How a 3-Year Fixed Rate Is Determined

Fixed mortgage rates in Canada are priced off the bond market. When a lender commits to a fixed rate for three years, it typically funds that loan through a mix of deposits and wholesale borrowing and hedges the interest-rate risk using instruments that track Government of Canada bonds. The three-year Government of Canada benchmark bond yield is therefore the closest market anchor for this term. When that yield rises, newly advertised three-year fixed rates tend to rise; when it falls, they tend to follow.

On top of the bond yield, a lender applies a spread that covers operating costs, credit risk, the cost of capital, and profit. That spread widens or narrows with competition and funding conditions. The outcome is the lender's posted rate — a published list price — and the discounted rate, which is what many borrowers are offered after negotiation. The distance between the two matters at payout time, because some lenders calculate an early-termination penalty from the posted rate rather than the discounted one.

Central-bank policy settings feed in indirectly. The Bank of Canada's policy rate sets the overnight lending environment, and lenders' prime rates move alongside it. Those levers drive variable-rate products directly; their effect on fixed rates runs through expectations, because markets price in where the policy rate is expected to sit over the coming years, and that expectation is already embedded in bond yields. The policy rate and mortgages guide explains that transmission channel in more detail.

A term premium also applies. Longer terms normally carry a higher rate than shorter ones when the yield curve slopes upward, while very short terms can be volatile because they reprice more often. The three-year area of the curve is frequently the cheapest point on it, which is why this term draws attention, but that relationship is not guaranteed — it depends on the shape of the curve when you shop. The Bank of Canada publishes a conventional mortgage rate series that surveys posted rates at major lenders; it is a benchmark of list pricing rather than a quote a borrower would receive, so check the current figure at the source rather than relying on a remembered number.

The federal mortgage stress test is applied on top of whichever contract rate is offered. For federally regulated lenders, a borrower generally has to qualify at the greater of the contract rate plus a fixed buffer, or a published floor rate. Confirm the current buffer and floor on the OSFI or FCAC website, because those figures are set by policy and change from time to time.

How the 3-Year Term Compares with Adjacent Terms

Fixed terms differ in how long the rate is locked, how often the mortgage comes up for renewal, and how much exposure there is to a prepayment penalty.

Shorter terms trade rate certainty for flexibility, and longer terms do the reverse. Compare contract rates and the annual percentage rate together, since the APR captures fees as well as interest.

Who a 3-Year Fixed Term Typically Suits

This term is often considered by borrowers who expect to sell, move, refinance, or renegotiate within a few years, and by those who want a predictable payment without committing for five years. It can also appeal to borrowers planning large lump-sum prepayments who want the option to revisit sooner, and to those whose mortgage horizon is shortening. It does not suit everyone: a borrower who wants the longest available payment stability may prefer a longer fixed term, while someone comfortable with fluctuating payments may prefer a variable rate. The fixed versus variable comparison sets out the differences.

Renewal and Breaking the Term Early

At the end of three years the mortgage matures and the lender usually sends a renewal offer. A borrower can renew with the same lender, switch to another lender, refinance, or pay the balance off. Doing nothing is also a choice with consequences, because some lenders roll the balance into a default term that may not reflect the best available pricing. Request the renewal offer early enough to compare alternatives.

Ending the term before maturity is different from reaching it. A closed fixed mortgage normally carries a prepayment penalty calculated as the greater of three months' interest or the interest rate differential. The IRD compares the contract rate with the lender's current rate for a term similar to the time remaining, so the cost depends on how rates have moved and on which rate series — posted or discounted — the lender uses. The prepayment penalty and IRD guides cover the mechanics in detail.

What to Check Before Choosing a 3-Year Fixed Rate

• How the prepayment penalty is calculated, and whether it uses posted or discounted rates.
• Prepayment privileges, including annual lump sums and payment increases without penalty.
• Portability if the home might be sold during the term, and whether the mortgage is assumable.
• Whether the mortgage is registered as a standard charge or a collateral charge.
• Rate hold terms while you shop, and the compounding convention used.
• The annual percentage rate, not just the contract rate, and the payment at the qualifying rate under the stress test.

Run the payment and balance figures through a mortgage payment calculator, and read how to compare mortgage rates before committing. Terms, penalties, and privileges vary by lender, so confirm the details in the written commitment.