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Compare The Best 3-year Fixed Mortgage Rates

Compare the best 3-year fixed mortgage rates

Colin Graves

By Colin Graves

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Updated: September 06, 2024

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Historically, Canadian homebuyers have shown a stronger preference for 5-year fixed-rate mortgages over 3-year fixed-rate mortgages. Although the 3-year rate has occasionally been lower, many buyers value the stability of a 5-year fixed-rate mortgage, which guarantees that their rate and payments remain unchanged for five years. We’re here to help you determine if a 3-year fixed-rate mortgage is the right choice for you.

The best current 3-year fixed mortgage rates in Canada

What is a 3-year fixed mortgage rate?

A 3-year fixed-rate mortgage locks in a borrower’s mortgage rate for three years. This differs from a variable-rate mortgage, in which rates can fluctuate during the term. Three-year fixed mortgage terms have grown in popularity in recent years, as Canadian homeowners have become wary of committing to longer terms during a period of high interest rates (more on that later). 

How do I know if a 3-year fixed rate mortgage is right for me?

A 3-year fixed rate mortgage is ideal for someone who wants the stability of a fixed interest rate and believes that mortgage rates should decrease during the next three years. It can also suit homeowners who plan to sell their home within the next three years. By opting for a shorter-term mortgage, they can avoid being stuck with a potentially large penalty for breaking their mortgage prior to maturity.

Factors that influence 3-year fixed mortgage rates in Canada

In Canada, fixed mortgage rates are determined by bond yields of similar durations. For example, if the current Canada 3-year bond yield is 3.20%, then the average 3-year fixed mortgage rate might fall somewhere between 4.50% and 5.00%, as mortgage rates tend to be between 1%-2% higher than bond yields. 

Pros and cons of getting a 3-year fixed mortgage rate

Pros

Pros

  • Rate is locked-in for three years

  • A good choice if you expect rates to drop within the next two to three years

  • If you have to break your mortgage early, your penalty may be lower than with a longer mortgage term

Cons

Cons

  • Unlike a variable mortgage, if rates drop during the term, you can’t take advantage

  • Your rate might be higher than a 5-year fixed rate

  • Offers less protection than a longer term during periods of rising rates

How to find the best 3-year fixed mortgage rate in Canada

If you’ve decided that a 3-year fixed rate mortgage is your best option, here are the steps you’ll need to follow to secure the best possible rate: 

  1. 1.

    Shop around. One of the biggest mistakes people make when getting a mortgage is only dealing with one lender. While the mortgage industry is competitive and rates don’t vary much from one institution to the next, a difference of 10 or 20bps can add up to hundreds of dollars saved over a three-year mortgage term. Taking time to compare rates from several lenders can help you find the best rate. 

  2. 2.

    Consider using a mortgage broker. Not everyone has the time to do the legwork required to find a mortgage. A mortgage broker can present your application to dozens of lenders, helping you secure the lowest possible rate, and the other features you’re looking for in a mortgage. The best part is that you can hire a broker at no cost, as they are typically paid a commission by the lender. 

  3. 3.

    Be prepared to negotiate. Most lenders will offer you a competitive rate upfront, but that doesn’t mean they can’t go lower. If you have a preferred lender, but find a lower rate elsewhere, find out if they are willing to match or beat the rate. You might be pleasantly surprised. 

  4. 4.

    Make sure your finances are in order. Lenders generally offer their lowest rates to their best clients. This doesn’t mean you have to have a million dollars in the bank, but having an excellent credit score can help. In fact, all things being equal, a credit score of 741 or higher can help you secure the best mortgage rates.

Historical 3-year fixed mortgage rate trends in Canada

For years, 3-year fixed mortgage rates remained slightly lower than 5-year fixed rates. In fact, according to the Bank of Canada, the posted 3-year fixed rate offered by the major Canadian banks was as low as 3.45% in December of 2020. Discounted rates were even lower. But the 3-year fixed has never been as popular as the 5-year, as most fixed-rate borrowers have preferred the stability of the 5-year term over the flexibility the 3-year fixed offers. 

When the Bank of Canada implemented a series of rate hikes beginning in March of 2022, the 3-year fixed rate began to increase along with the 5-year rate. 

In 2024, the 3-year fixed is slightly higher than the 5-year. However, it’s an increasingly popular choice, as borrowers are opting for the flexibility of a shorter term, in anticipation that rates will continue to drop over the next year or two. 

FAQs

  • Is it better to get a 3- or 5-year fixed mortgage rate?

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    It depends on your individual situation and what you expect mortgage rates to do over the next three to five years. If you are unsure whether you will be staying in your home over the long-term, you may be better off going with a 3-year term. This is also true if you believe that interest rates will be lower in three years. However, if you can secure a lower 5-year mortgage rate, and you don’t foresee having to break your contract early, a 5-year term may your best option. If you’re unsure, consider speaking with a mortgage broker. They will have the necessary expertise to help you make the best decision.

  • What happens at the end of a 3-year fixed mortgage?

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    When your 3-year fixed mortgage term expires, you’ll have an opportunity to renew your mortgage for another term. Mortgage lenders are usually very good to let you know when your renewal period is approaching, and will do what they can to keep your mortgage. However, you can also choose to move your mortgage to another lender when your term expires. As long as you haven’t renewed the mortgage, you won’t be charged a penalty; however, there may be other costs involved.

  • Can you refinance a 3-year fixed mortgage in Canada?

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    Yes, it’s possible to refinance a 3-year fixed mortgage. You can do this during or at the end of your mortgage term. Just be aware that if you refinance during the middle of your 3-year term, you may have to port your mortgage. This means that you would keep your existing interest rate on the money you already owe, and any new funds would be subject to current mortgage rates. Your existing term would also remain in place.

Colin Graves Freelance Writer

Colin Graves is a Winnipeg-based financial writer and editor whose work has been featured in publications such as Time, MoneySense, MapleMoney, Retire Happy, The College Investor, and more. Before becoming a full-time writer, Colin was a bank manager for over 15 years.

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