Rates · fixed
5-Year Fixed Mortgage Rate
The five-year fixed rate is Canada's most common mortgage term, priced from Government of Canada bond yields plus a lender spread..
The 5-year fixed mortgage rate is the interest rate on a mortgage whose rate and payment stay constant for a five-year term. It is the most common mortgage term in Canada and the benchmark for fixed pricing. No single body sets it. Lenders build it from Government of Canada bond yields of similar maturity, their funding and operating costs, and a profit margin, then adjust the offer for the borrower, the property, and competitive conditions.
How a 5-year fixed rate is priced
The anchor is the Government of Canada bond market. Five-year fixed mortgages are funded and hedged with instruments that compete with five-year Government of Canada bonds, so the yield on those bonds is the starting point. Lenders add a spread for funding costs, servicing, administration, and profit. Because a longer commitment carries more uncertainty, longer fixed terms generally carry a term premium over shorter ones, although the yield curve can flatten or invert at times. The output is a posted rate, which is a list price rather than the rate most borrowers actually receive. Discounts below posted vary by lender, distribution channel, and the borrower's credit profile, down payment, property type, and loan size. The factors that move mortgage rates are worth understanding before any comparison.
Where the Bank of Canada and the bond market fit
The Bank of Canada's policy interest rate sets the tone for short-term borrowing costs and feeds into the prime rate lenders use for variable products and lines of credit. Its effect on a five-year fixed rate is indirect. Fixed rates track bond yields, and bond yields move on expectations of what the central bank will do over the next several years. A five-year fixed rate can therefore fall while the policy rate is unchanged, or rise while the policy rate is being cut. The Bank of Canada publishes a conventional mortgage rate series summarising posted five-year rates at chartered banks. It is a comparison benchmark, not a rate any particular borrower will be offered, so check the current figure at the source. The policy rate guide explains how that transmission works.
Posted rate, discounted rate, and the stress test
Federally regulated lenders apply a stress test: the borrower must qualify at the higher of the contract rate plus a buffer, or a specified floor rate. The buffer and floor are set by OSFI and can change, so confirm current values with OSFI or the FCAC rather than relying on an older figure. Because the qualifying rate sits above the rate actually paid, it reduces the mortgage amount a given income supports. A lower contract rate can therefore improve affordability even when payment size is not the constraint. The stress test guide sets out how these figures interact, and a dedicated calculator can model a specific case.
Who a 5-year fixed term typically suits
This term is generally chosen by borrowers who want a known payment for a meaningful stretch of time and who expect to keep the property for several years. It suits households that value budgeting certainty over the possibility of a lower rate later. It is a weaker fit for borrowers who may sell, relocate, or refinance soon, because a closed mortgage limits prepayment and charges a penalty to break. It also becomes more attractive when fixed and variable pricing sit close together, since the fixed option buys certainty. Whether it fits a particular situation depends on individual circumstances. The fixed vs variable guide sets out the trade-off.
How the 5-year term compares with adjacent terms
Term length trades certainty for flexibility. The table below describes general tendencies, not current pricing.
| Term | Typical role | Things to weigh |
|---|---|---|
| 1-year fixed | Short commitment, often used when rates are expected to shift | Frequent renewal; more exposure to rate changes |
| 3-year fixed | Middle ground between a short and a standard term | Renewal arrives sooner than a five-year borrower may expect |
| 5-year fixed | The most common Canadian term and the pricing benchmark | Longest common closed commitment; breakage penalty applies |
| 10-year fixed | Extended certainty for borrowers who want it | Usually less flexibility; penalties can be larger |
| Variable rate | Rate or payment moves with the lender's prime rate | Payment or amortization can change; penalties are often smaller |
Shorter fixed terms renew sooner, which brings more contact with the market and more opportunities to renegotiate, but also more chances to renew into an unfavourable environment. Longer terms lock in certainty and often price higher. Variable products link to the prime rate and behave differently over the term, and some borrowers split the difference through a hybrid structure.
Renewal, breaking the term early, and what to check
At maturity the mortgage is renewed or repaid. Renewal is a new contract at whatever pricing exists then; the old rate is not carried over. Lenders normally send a renewal statement before maturity, and comparing it against other lenders is routine — see the mortgage renewal guide. Breaking a closed fixed mortgage early usually triggers a penalty equal to three months' interest or an interest rate differential, whichever is greater at that lender. The differential compares the remaining term's rate with a current rate for a similar term, so the penalty can be substantial after rates fall. The interest rate differential explainer covers the calculation, and the penalty guide covers typical formulas.
Before committing, check the discounted rate against the posted rate, whether the mortgage is closed or open, the prepayment privileges and whether they reset annually, the penalty formula and whether it relies on posted rates, portability, the annual percentage rate, which folds in fees and the effect of semi-annual compounding, and the amortization schedule. A payment calculator models payments and total interest over the amortization period, and a rate comparison guide sets out what to line up side by side. Confirm live figures and any qualifying thresholds with the lender and the published federal sources.
Frequently asked questions
Is a 5-year fixed mortgage rate the best choice in Canada?
There is no single best term. A five-year fixed term buys payment certainty for five years, which suits borrowers who plan to keep the property and prefer predictable budgeting. Shorter terms renew sooner and may allow faster renegotiation; variable rates move with prime. The fit depends on how long the borrower expects to hold the mortgage and how much payment variability the budget can absorb.
How is the 5-year fixed mortgage rate determined?
It is anchored to Government of Canada bond yields of similar maturity, plus a lender spread for funding, servicing, and profit. Longer terms usually carry a term premium, though the yield curve can flatten or invert. The posted rate is a list price; the discounted rate offered depends on the lender, the channel, and the borrower profile. The Bank of Canada publishes a conventional mortgage rate series as a benchmark.
Do you have to pass the mortgage stress test for a 5-year fixed mortgage?
Federally regulated lenders apply the stress test to mortgage applications, including fixed-rate ones. Qualification is tested at the higher of the contract rate plus a buffer or a set floor rate. The buffer and floor are set by OSFI and can change over time, so confirm the current figures with OSFI or the FCAC. The test reduces the maximum mortgage a given income supports.
What happens if you break a 5-year fixed mortgage early?
A closed fixed mortgage normally carries a penalty when broken before maturity, calculated as three months' interest or an interest rate differential, whichever is greater at that lender. The interest rate differential compares the remaining term's rate with a current rate for a similar term, so penalties tend to be larger when rates have fallen. Exact formulas vary by lender.