You will be able to avoid mortgage penalties if you wait until your term expires. Breaking your mortgage, which happens when you sell your home and move or renegotiate your mortgage before the end of the term, will come with significant mortgage prepayment penalties. There are other considerations to your mortgage term length besides just the mortgage rate. In 2020, a Bank of Canada working paper found that 80% of all mortgages in Canada were short-term mortgages, with terms ranging from 2 years to 5 years.

Many Canadian mortgage lenders offer special and attractive mortgage rates for 5-year mortgages due to its popularity and competition between lenders. For example, a 4-year fixed mortgage rate will usually be higher than a 1-year fixed mortgage rate. Generally, shorter-term mortgages will have a lower mortgage rate, while longer-term mortgages will have a higher mortgage rate. The mortgage term that you choose will affect your mortgage rate. A new mortgage rate will also need to be renegotiated at the end of the term. Once your mortgage term is over, you can renew your mortgage or refinance your mortgage. If you have a fixed interest rate, it will remain the same for the length of your mortgage term. The term is the period of time that your mortgage contract is valid for. For example, the interest rate for a 10-year term is determined based on the 10-year government bond yield. Different mortgage terms have different interest rates because interest rate for a mortgage term depends on the government bond yield of the same maturity. The most common mortgage term is 5 years, with it accounting for 47% of all fixed-rate mortgages in May 2022, but mortgage term lengths can be for as little as 6 months or as long as 10 years. As always, make sure to have the proper documentation for mortgage applications. This includes the mortgage term length, whether it is insured/high-ratio or not, and your credit score and credit history. Your mortgage rate will also be affected by certain factors that your mortgage lender will look at. This allows you to be partially protected from rate hikes, while partially benefiting should rates decrease. With a hybrid/combination rate, you’ll have a fixed rate for a certain portion of your mortgage balance, and a variable rate for the remaining portion. While less common, there are also hybrid/combination rate mortgages in Canada. By the start of 2022, 56.9% of all new mortgages had a variable interest rate, a stark contrast to 24.7% of new mortgages having a variable rate in early 2021. This changed in late 2021, when variable rate mortgages became more common due to low variable rates and high fixed rates.

Fixed rates are historically the most common, followed by variable rates. These mortgage rate options will affect how your interest rate changes over time. Each mortgage typically has the selection of two different rates: There are many different types of mortgages in Canada. What Affects Your Mortgage Rate in Canada?

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