Best 3-Year Fixed Mortgage Rates In Canada For January 2024 (2024)

We reviewed 100 mortgage lenders that do business both online and in-person throughout Canada. The lenders we reviewed represent some of the largest mortgage lenders by volume, which includes banks, credit unions and online lenders. Lenders that didn’t provide their mortgage rates or operate in fewer than four provinces or territories were not eligible for review.

Our rates were generated through publicly available posted rates on the lender’s website, but also through the following borrower profiles that we presented to the lender anonymously by phone or online:

Profile 1
Property Type: Single-Family Home
Property Usage: Primary Residence
Purchase Price: $790,000
Down Payment: 20% ($158,000)
Credit Score: 700-719
Postal Code: N2L 1V6 (Waterloo, Ontario)

Profile 2
Property Type: Single-Family Home
Property Usage: Primary Residence
Purchase Price: $1,300,000
Down Payment: 20% ($260,000)
Credit Score: 700-719
Postal Code: V6A 2W5 (Vancouver, British Columbia)

Profile 3
Property Type: Single-Family Home
Property Usage: Primary Residence
Purchase Price: $300,000 ($60,000)
Down Payment: 20%
Credit Score: 700-719
Postal Code: S4P 3C8 (Regina, Saskatchewan)

Profile 4
Property Type: Single-Family Home
Property Usage: Primary Residence
Purchase Price: $440,000 ($88,000)
Down Payment: 20%
Credit Score: 700-719
Postal Code: B3S 0J1 (Halifax, Nova Scotia)

Our scores out of five are based on the following factors:

• Rate – 75%
• Timeliness – 5%
• Prepayment privileges – 5%
• Penalty calculation type – 10%
• Availability of discount rates – 5%

Please do not take the rates posted here as gospel. They are intended to only offer a ballpark and sample of the rate a lender may offer for that particular mortgage term. That does not mean that you will qualify for the above rates or that they haven’t changed those rates since publication. Please consult a mortgage lender or broker to get the best rate possible for your particular property-buying circ*mstance and financial situation.

A three-year fixed mortgage holds the same interest rate for the entire 36-month term. Afterward, borrowers can either sign up for a new term at the current mortgage rate or switch to a variable-rate mortgage. Often, borrowers opt for a three-year mortgage term when they expect mortgage rates to drop in the near future because the term is short and won’t lock them into a rate for a long-time.

A three-year fixed-rate mortgage allows you to save money by renewing at lower market rates faster than a 5-year fixed-rate mortgage.

How are Canadian 3-Year Fixed Mortgage Rates Determined?

The Government of Canada’s three-year bond yields influence three-year fixed mortgage rates. When bond yields rise, fixed mortgage rates follow suit. Conversely, when yields decrease, rates also decline.

As market expectations for higher interest rates grow, investors demand higher yields on bonds, causing an increase in three-year fixed mortgage rates. Conversely, when expectations shift toward lower interest rates, bond yields decrease, leading to a decline in mortgage rates.

However, the correlation between bond yields and mortgage rates is not perfectly synchronized. When determining rates, lenders consider additional factors such as the bond-mortgage spread and marketing strategies.

Is a 3-Year Fixed-Rate Mortgage Right for You?

Opting for a three-year term could be strategic if you anticipate a decline in interest rates sooner rather than later. This allows you to renew at a potentially lower rate. Furthermore, this choice is particularly advantageous if your life plans undergo a shift within the next few years.

Another big benefit of a three-year term is if you intend to pay a substantial portion of your mortgage between renewals. You can typically pay more than 20% without incurring penalties, which helps you save on interest and avoid additional costs.

The cost of prepayment penalties for early exit from your mortgage contract is typically comparable with a three-year mortgage to a five-year mortgage. However, you’ll be forced to renew into higher market rates faster if interest rates rise during your term. Exercise caution, especially if it looks like interest rates are on an upward trend.

Pros and Cons of a 3-year Fixed-Rate Mortgage

Pros

• Flexibility: After three years, you can change to a potentially better rate without breaking your mortgage contract and paying a penalty.
• Predictable Cost: Opting for a three-year fixed-rate mortgage ensures you know your mortgage payments for the entire period, simplifying budgeting and facilitating long-term financial planning.
• Potential for Lower Rates: If interest rates drop during the three-year period of the term, you can renew into lower rates sooner than you could with a five-year fixed-rate mortgage.

Cons

• Less Rate Stability: Offers less stability for a shorter period of time than mortgages with longer terms, Plus, monthly payments may increase at renewal if interest rates rise during your term.
• Potential For Penalties: Selling before your mortgage term ends can lead to prepayment penalties, particularly with a fixed-rate mortgage. These penalties can be challenging, especially if you’re not selling your house and lack additional funds to cover the costs.
• More Frequent Renewals: Requires more frequent mortgage renewals, potentially resulting in additional costs such as appraisal and legal fees.

The amortization length is the total time needed to repay your mortgage fully. It contains mortgage terms, which are commonly three to five-year payment contracts. At the end of each term, you renew into a new payment contract until you fully pay off your mortgage balance.

In Canada, the maximum amortization is 25 years with a down payment of less than 20% and up to 35 years with a down payment exceeding 20%, though this is less common. Opting for a shorter amortization period reduces the interest you pay over the course of your mortgage. However, it increases your monthly payments.

Fees

Some lenders lure you in with a low interest rate but charge high back-end fees. While certain fees like appraisal fees for mortgage renewals are standard, be careful to compare the true cost of borrowing between lenders.

Having a clear conversation with your lender is crucial. Inquire about the annual percentage rate (APR), which reflects the true cost of borrowing. Seek to understand the specific fees and their amounts before finalizing your mortgage contract.

Prepayment Penalties

Prepayment penalties apply only to closed mortgages. Conversely, open mortgages allow full payment at any time. Exceeding your monthly payment or the permitted percentage of annual prepayment privileges on a closed mortgage incurs a penalty.

With fixed-rate mortgage penalties, lenders typically charge more than three months’ interest or the interest rate differential (IRD). Calculated using posted rates, the IRD may be higher than your actual rate, potentially resulting in increased short-term interest payments.

Portability

A portable mortgage lets you seamlessly transfer it to a new home without penalty. If your new home is less expensive than the previous one, you retain your existing mortgage interest rate. In the case of a more expensive new home, your lender may provide a blended interest rate or allow the addition of a second mortgage to cover the difference.

Homeowners don’t receive cash back in a portability arrangement. If the mortgage is more expensive than the new home, they typically need to cover the difference or refinance altogether.

Open vs. Closed Mortgages

Three-year fixed-rate mortgages, like all fixed-rate mortgages, are typically categorized as closed mortgages. A closed mortgage means you can only prepay a certain amount of your mortgage principal annually. Usually, you’re limited to no more than up to 20% of your mortgage principal with penalties for exceeding this threshold.

Conversely, an open mortgage has more flexibility. You can prepay your mortgage as desired without penalties. The primary drawback is that open mortgage rates are usually higher than closed mortgages. You pay a premium for the flexibility.

A fixed-rate mortgage maintains a constant interest rate throughout the term, whereas a variable-rate mortgage interest rate fluctuates with changes in the prime rate. Both models have their pros and cons.

Fixed-rate mortgages offer predictability, as your interest rate remains unchanged for a set period, even if the Bank of Canada adjusts the overnight interest rate. However, you can’t capitalize on savings if the market interest rates decrease during your term.

While most Canadian variable-rate mortgages have a fixed monthly payment, when interest rates rise, a larger portion of each payment goes towards interest. This can potentially put you behind your amortization schedule. At renewal, borrowers may need to either extend their amortization or make a higher monthly payment.