When it comes to choosing a mortgage in Canada, one of the most common options is the 5-year fixed-rate mortgage. It’s a popular choice for its balance of rate stability and manageable term length, but shorter-term mortgages are also gaining traction—especially as economic conditions shift.
Understanding the pros and cons of each option can help you make the best decision for your financial goals. At Homewise, we guide buyers through their mortgage journey, helping them secure the right product to fit their needs.
1. What Is a 5-Year Fixed Mortgage?
A 5-year fixed mortgage locks in your interest rate for five years, meaning your monthly payments remain consistent throughout the term—regardless of fluctuations in the market. This option is particularly appealing during times of economic uncertainty or rising interest rates.
Key Features of a 5-Year Fixed Mortgage:
- Fixed Interest Rate – No surprises, even if rates rise during your term.
- Stability – Monthly payments remain the same for five years.
- Predictable Budgeting – Easier long-term planning without worrying about rate hikes.
💡 Thinking about a 5-year fixed mortgage? Start your journey with Homewise’s pre-approval process and secure the best rate for your needs.
2. Why Is the 5-Year Fixed Mortgage So Popular in Canada?
In Canada, nearly 50% of all mortgages are 5-year fixed terms. Here’s why this term length remains the go-to for many homeowners:
a) Rate Stability and Peace of Mind
One of the biggest draws of a 5-year fixed mortgage is protection against interest rate increases. With rates locked in, homeowners can avoid market volatility and focus on paying down their mortgage.
Example:
- You secure a 5-year fixed mortgage at 4.75%. Even if rates jump to 6% during your term, your payments won’t change.
b) Manageable Term Length
Five years strikes the perfect balance between short-term flexibility and long-term stability. It’s long enough to provide security but short enough to re-evaluate your options before committing to a longer period.
c) Competitive Rates
Because it’s such a common option, 5-year fixed mortgages often offer lower rates compared to longer-term fixed mortgages. This can lead to significant savings over the course of the term.
3. Why Some Canadians Choose Shorter-Term Mortgages
While the 5-year fixed mortgage dominates the market, many homeowners are exploring shorter-term options (e.g., 2- or 3-year terms). Here’s why:
a) Lower Initial Rates
Shorter-term mortgages often come with slightly lower interest rates than 5-year fixed options. This is appealing to borrowers who believe rates will remain stable or decline in the near future.
b) Flexibility and Opportunity
A shorter mortgage term allows homeowners to renegotiate or refinance sooner. This is advantageous if you expect:
- A decline in interest rates.
- A boost in income or career advancement.
- The need to sell or move within a few years.
Example: If rates are projected to decrease, a 2-year fixed mortgage lets you take advantage of lower rates sooner than a longer-term mortgage.
c) Faster Mortgage Renewal
With shorter terms, homeowners can adapt to market changes more frequently. If rates drop at the end of your term, you can renew at a lower rate without waiting several years.
💡 Considering a shorter term? Let Homewise help you compare lenders and secure the best option for your situation.
4. Comparing 5-Year Fixed vs. Shorter Terms
Feature | 5-Year Fixed Mortgage | Shorter-Term Mortgage |
| Interest Rate Stability | Locked for 5 years | Locked for 1-3 years |
| Monthly Payment | Consistent throughout the term | Consistent, but shorter duration |
| Flexibility | Less flexible, higher penalties for breaking | More flexible, easier to refinance |
| Risk Level | Lower risk of rate increases | Higher risk if rates rise at renewal |
| Renewal Frequency | Renew every 5 years | Renew every 1-3 years |
| Best For | Risk-averse homeowners | Buyers anticipating lower future rates |
5. Breaking Down the Risks
While both options have their merits, it’s important to understand potential risks:
- 5-Year Fixed Mortgage Risks:
- Higher penalties if you break the mortgage early.
- Locked in even if rates decrease.
- Shorter-Term Mortgage Risks:
- Greater exposure to market fluctuations.
- Uncertainty around future renewal rates.
6. When Is a 5-Year Fixed Mortgage the Best Choice?
Consider a 5-year fixed mortgage if you:
- Prefer predictability and stability.
- Plan to stay in your home for the next 5 years.
- Want to avoid market risks and rate hikes.
- Are buying in an environment of rising interest rates.
7. When Should You Consider a Shorter-Term Mortgage?
A shorter-term mortgage might be better if you:
- Anticipate moving or upgrading in the near future.
- Expect interest rates to drop soon.
- Want greater flexibility for refinancing.
- Are comfortable reassessing your mortgage more frequently.
Pro Tip: If you choose a shorter term, stay informed about market trends to make sure you renew at the right time.
8. How to Decide Between 5-Year and Shorter Terms
The best mortgage term depends on your financial goals, lifestyle, and risk tolerance. If you’re uncertain, our team at Homewise can help you weigh your options and choose the right term for your situation.
🏠 Start your journey today with a mortgage pre-approval to see which option aligns best with your goals.
Final Thoughts
While the 5-year fixed mortgage remains the top choice for Canadian homeowners, shorter-term mortgages offer compelling benefits for those seeking flexibility. By understanding the pros and cons of each, you can make informed decisions that align with your long-term financial plans.
Ready to find the best mortgage for your needs? Let Homewise simplify the process and connect you with the right solution today.
