1-Year Fixed Mortgage Rates
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1-Year Fixed Mortgage in Canada: Full Guide
This Page's Content Was Last Updated: November 22nd, 2022
What You Should Know
- Those looking to sell their home soon, expecting rates to decrease, or in the process of rebuilding their credit might go for a 1-year fixed mortgage rate instead of a longer term.
- A 1-year mortgage makes it easy to avoid mortgage prepayment penalties due to more frequent renewals.
- Historically, 1-year fixed mortgage rates have been lower than 3-year and 5-year fixed mortgage rates.
Guide to 1-Year Fixed Mortgages in Canada
For those looking to get a short-term mortgage, 1-year fixed mortgages are one of the shortest mortgage terms available in Canada. It means that the interest rate and regular mortgage amount will remain the same for one year. After that, you’ll need to renew at current mortgage rates, refinance, or pay off your mortgage in full. When should you consider a 1-year fixed mortgage, and what are the pros and cons? This page will explain all you need to know about 1-year fixed mortgages in Canada.
What Is a 1-Year Fixed Mortgage Rate?
A 1-year fixed mortgage is just what it sounds like: a mortgage with a term of one year and an interest rate that does not change for the duration of the term. This means that, unlike other types of mortgage loans, you will have the same monthly payment for 12 months. Other common fixed mortgage term lengths that you can choose from include 5-year and 3-year fixed mortgages.
Different mortgage terms will have their own mortgage rates. Generally, the longer the term, the higher the rate will be. Historically, 1-year fixed rates have been lower than 3-year and 5-year fixed rates. However, it’s still possible for 1-year fixed mortgage rates to be higher than even 5-year fixed mortgage rates. Due to their short term lengths, a 1-year fixed mortgage can sometimes be seen as an alternative to a variable mortgage rate.
One of the biggest advantages of a 1-year fixed mortgage is that it offers predictability. You'll know exactly how much your mortgage payments will be for the next year, which can help you budget and plan ahead. Additionally, because your interest rate will not change, you'll be able to lock in a low rate if rates are currently low. However, the short term length means that the rate you’re locking in won’t be locked for long. Your mortgage renewal will quickly come up, where you’ll then need to renew for another term.
Who Are 1-Year Fixed Mortgages For?
There are many reasons why a borrower might only want a 1-year mortgage term. This includes those that are:
- Planning on selling their home soon
Borrowers that are planning on selling their home soon would be better off choosing a shorter mortgage term. That’s because mortgage lenders may charge mortgage prepayment penalties for paying off a mortgage early and if they don’t plan on porting or transferring the mortgage. Those that only need a short-term mortgage might even include investors and property flippers, or those close to paying off their mortgage in full. - Expecting rates to decrease
If you expect interest rates to decrease in the near future, you’ll want to choose a shorter-term mortgage. That’s so the current higher rate will only apply for a shorter period of time, and it will allow you torenew or refinance into a lower rate earlier. Of course, that is if rates do decrease. - Rebuilding their credit
While this applies more for private mortgages, borrowers that are rebuilding their credit might opt for a shorter term. That’s because their goal would be to improve their financial situation so that they can qualify for better mortgage rates, but in the meantime, their mortgage rate might be higher. Once their credit score improves, as well as other metrics such as their debt service ratios, then they might be able to switch lenders and obtain a more favourable rate.
How Popular Are 1-Year Fixed Mortgages in Canada?
According to the Government of Canada, 10% of fixed rate mortgages in Canada have a term length of less than 1 year, while 23.5% of mortgages have a term length ranging from 1 year to less than 3 years. In comparison, 46% of fixed rate mortgages have a term of 5 years or more. While 5-year fixed rate mortgages are the most common mortgage choice in Canada, there is still a sizable market for those looking for a short-term mortgage.
Pros and Cons of a 1-Year vs. 5-Year Mortgage
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The Pros and Cons of a 1-Year Fixed Mortgage Rate
Pros:
- Since renewals will come up more often, it’s easier to avoid mortgage prepayment penalties with a 1-year term. That’s because you can prepay as much as you would like when you renew your mortgage, and you can refinance your mortgage when it’s up for renewal without being charged penalties for breaking your mortgage.
- If current market rates decrease, you can act on it earlier. For example, if you think rates will decrease soon, you might choose a shorter term now while you wait for rates to decrease. Once they have decreased, you can choose to renew with a longer mortgage term to lock in that rate.
Cons:
- While many mortgage lenders make it easy to renew your mortgage, frequent renewals can still create stress as you need to keep on top of your renewals. This might include negotiating your mortgage rate or switching lenders. Switching lenders may also come with added costs.
- Rates might not always be favourable when your 1-year term ends. While this also applies to any term length, a short term means that you have less time to take advantage of your locked rate and weather any potential rate increases.
- Your mortgage payment amount might change for your next term, which can make it harder to budget when it changes every year.
Historical 1-Year Mortgage Rates
Posted Conventional Rates by Canada’s Major Banks
| Year | Jan | Feb | Mar | Apr | May | June | July | Aug | Sept | Oct | Nov | Dec |
| 2016 | 3.14% | 3.14% | 3.14% | 3.14% | 3.14% | 3.14% | 3.14% | 3.14% | 3.14% | 3.14% | 3.14% | 3.14% |
| 2017 | 3.14% | 3.14% | 3.14% | 3.14% | 3.14% | 3.14% | 3.14% | 3.14% | 3.14% | 3.24% | 3.24% | 3.24% |
| 2018 | 3.24% | 3.34% | 3.34% | 3.34% | 3.49% | 3.49% | 3.49% | 3.49% | 3.49% | 3.49% | 3.64% | 3.64% |
| 2019 | 3.64% | 3.64% | 3.64% | 3.64% | 3.64% | 3.64% | 3.64% | 3.64% | 3.64% | 3.64% | 3.64% | 3.64% |
| 2020 | 3.64% | 3.64% | 3.64% | 3.29% | 3.29% | 3.19% | 3.19% | 3.09% | 3.09% | 3.09% | 3.09% | 3.09% |
| 2021 | 3.09% | 2.79% | 2.79% | 2.79% | 2.79% | 2.79% | 2.79% | 2.79% | 2.79% | 2.79% | 2.79% | 2.79% |
| 2022 | 2.79% | 2.79% | 2.79% | 3.09% | 3.29% | 3.79% | 4.74% | 5.19% | 5.19% | 6.09% | 6.09% |
Source: Bank of Canada
Disclaimer:
- Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
- The calculators and content on this page are for general information only. WOWA does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
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- Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.